Forget the lower fall in this week of the British inflation number.
The most important European data release was the confirmation from Germany that, during 2024, its economy contracted for the second consecutive year.
Europe’s largest economy shrank by 0.2% during 2024 – on top of a 0.3% contraction in 2023.
Now it must be stressed that this was a very early estimate from Germany’s Federal Statistics Office and that the numbers may be revised higher in due course. That health warning is especially appropriate this time around because, very unexpectedly, the figures suggest the economy contracted during the final three months of the year and most economists had expected a modest expansion.
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If unrevised, though, it would confirm that Germany is suffering its worst bout of economic stagnation since the Second World War.
The moment is for Olaf Scholz, the German chancellor, who faces the electorate in just six weeks.
Worse, it turns out that things seem to be available this year, regardless of who wins the election.
Germany, like the rest of the world, looks impatient to see what costs of Donald Trump they will slapped imports when they return to the White House next week.
Germany, whose surplus of the industry with the United States is estimated through the Reuters news firm for having reached a record of 65 billion euros (54. 7 billion pounds sterling) the first 11 months of 2024, is probably a Important objective for such prices.
Apart from that, Germany remains assaulted through some of those she has been suffering for some time.
Because of its large manufacturing sector, Germany has been hit disproportionately by the surge in energy prices since Russia invaded Ukraine nearly three years ago, while those manufacturers are also suffering from intense competition from China. The big three carmakers – Volkswagen, Mercedes-Benz and BMW – were already staring at a huge increase in costs because of having to switch to producing electric vehicles instead of cars powered by traditional internal combustion engines. That task has got harder as Chinese EV makers, such as BYD, undercut them on price.
Other German brands, many of which have not completely recovered from Covid closures five years ago, have also been harassed through higher costs, as shown through the fact that, markedly, commercial production German in November last year in total of 15% under the record. Reached in 2017.
German consumer spending, meanwhile, remains becalmed. Consumers have kept their purse strings closed amid the economic uncertainty while a fall in house prices has further depressed sentiment. While home ownership is lower in Germany than many other OECD countries, those Germans who do own their own homes have a bigger proportion of their household wealth tied up in bricks and mortar than most of their OECD counterparts, including the property-crazy British.
The feeling of the consumer has also been beaten through waves of dismissals. Fortune 500 companies, adding large names such as Siemens, Bosch, Thyssenkrupp and Deutsche Bahn, have estimated that more than 60,000 employees in the first 10 months of 2024. Bosch, one of those of the maximum production companies admired in the country, announced In November, plans to disappoint about 7,000 employees.
More of the same is expected in 2025.
Volkswagen surprised the German audience in September last year when he said he was contemplating his first closure of the German factory in his 87 years of history. Analysts recommend that up to 15,000 jobs can move on to the company.
Accordingly, hopes for much of a recovery are severely depressed.
As Jens-Oliver Niklasch, of LBBW Bank, put it today: “Everything suggests that 2025 will be the third consecutive year of recession.”
That is not the view of the Bundesbank, Germany’s central bank, whose official forecast – set last month – is that the economy will expand by 0.2% this year. But that was down from its previous forecast of 1.1% – and growth of 0.2%, for a weary German electorate, will not feel that different from a contraction of 0.2%.
And all is not lost yet. The European central bank is expected to cut interest rates more aggressively this year than any of its peers. Meanwhile, one option for anyone who wins the German election would be to remove the “debt brake” imposed in 2009 in reaction to the global monetary crisis, which prevents the government from managing a structural budget deficit of more than 0. 35% of the German year of GDP.
The incoming chancellor, who is Friedrich Merz of the Central Center of CDU / CSU, can justify such resolution without problems through the expansion of defense expenses in reaction to Mr. Trump’s requests for NATO members. Mr. Merz also indicated that the policies aimed at supporting decarbonization will have less precedence than the defense of Situiated brands in Germany.
But these are all, for now, only things that may happen rather than things that will happen.
And the current economic doldrums, in the meantime, will only push German voters to the extreme left-wing Alliance Sahra Wagenknecht or the extreme right-wing Alternative fur Deutschland.