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Germany’s economy contracted 0.5 to 1 percent during 2021’s final three months, according to a 14 January announcement by the nation’s statistics agency.
Supply-chain turmoil, surging prices for raw materials, and the economic weakness of China, Germany’s largest trading partner, torpedoed the country’s manufacturing sector, especially vehicle manufacturers, upon which Germany’s economic performance depends significantly.
Crucially, COVID-related restrictions hobbled consumer spending, which slumped 3 percent during the period.
In December, Germany’s inflation rate surged to 5.3 percent, a 30-year high.
In all of 2021, Germany’s economy grew about 2.7 percent, the agency said, about 2 percentage points below 2019’s performance.
Germany’s economy accounts for about a third of the 19-country Eurozone’s GDP.
Germany’s weakness stems from its strong reliance on manufacturing for export, which accounts for a third of the country’s jobs, about four times more than in the U.S.
Factories have been hampered by ongoing materials shortages, supply-chain disruptions, and rising costs, especially the skyrocketing price of energy.
China, dealing with its own economic troubles, cut imports of German products 4.2 percent in November.
One in seven German companies now fear for its continued existence, according to a 2022 poll by the country’s Ifo Institute for Economic Research.
In contrast, the U.K.’s economy grew 0.9 percent from October through November, sending its GDP back above its pre-COVID level, Britain’s statistics agency reported on 14 January, a benchmark the U.S. reached in mid-2021, Capital Economics said.
The Eurozone’s overall growth is estimated at 5 percent last year and the U.S.’s at 5.8 percent, according to The Wall Street Journal.
TREND FORECAST: As goes Germany, so goes Europe. It should be noted that Germany was heading into recession at the end of 2019, just before the COVID War broke out. And although the European Central Bank says it will not raise interest rates, we forecast that as inflation keeps rising, interest rates will increase.
Therefore, the higher interest rates rise, the deeper economies will fall. Also, with new COVID restrictions being put in place across Germany, as we have detailed in this Trends Journal, the economy will further decline. See, “GERMAN’S HIT HARD WITH NEW COVID MANDATES. PROTESTS CONTINUE.”
TREND FORECAST: Germany’s weakness is having an outsized effect on the Eurozone’s overall economic performance and will continue to do so until the vehicle manufacturing industry recovers, probably not until at least the second half of this year.
More broadly, Germany’s troubles are a microcosm of the problems facing Western economies generally, from inflation and materials shortages to trading partners’ pullbacks.
“The German economy has emerged as a barometer for a number of global issues, including rising energy prices, the slowdown in China, and supply-chain disruptions,” the WSJ noted.
The Trends Journal has reported extensively on the coronavirus outbreak and the damage it has done to the German economy. (SEE: “GERMANY SLIDING TOWARD RECESSION,” “GERMANY’S FACTORY OUTPUT FALLS FOR THIRD STRAIGHT MONTH,” “GERMANY: ECONOMY HITS THE BRAKES.”)