Nearly twenty-five years ago, Germany was termed the sick man of Europe in the late 1990s. And once more, the largest economy in Europe is being termed the same amid recession in the country as well as other Eurozone nations.
The ¡°sick man of Europe¡± tag has resurfaced in recent weeks as manufacturing output continues to stutter in the region¡¯s largest economy and the country grapples with high energy prices. The label was originally used to describe the German economy in 1998 as it navigated the costly challenges of a post-reunification economy.
"It is not a short-term phenomenon," according to Hans-Werner Sinn, president emeritus at the Ifo Institute, as per the CNBC report. It "has to do with the automobile industry, which is the heart of the German industry, and many things hinge on that," he said. Cars were Germany¡¯s main export product last year, accounting for 15.6% of the value of goods sold abroad, federal statistics office data shows. Germany reported a foreign trade deficit for the first time in decades in May 2022, totaling 1 billion euros ($1.03 billion). The country had briefly shifted from a trade surplus to importing more than it exported.
Germany has since returned to a trade surplus, which came to 18.7 billion euros in June 2023, according to the federal statistics office, but exports remain sluggish.?Sinn said investor doubts about the feasibility of Germany¡¯s sustainability goals also play into the?description of the country as the "sick man of Europe."
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Germany, the world¡¯s fourth-largest economy and Europe¡¯s largest economy,?had been confirmed to be slipping into?recession?earlier this year in May. This comes after last year¡¯s energy price shock amid the Ukraine-Russia war, which has taken a toll on consumer spending.?
Germany¡¯s GDP had dropped 0.3% in the first three months of the year (January¨CMarch 2023), following a 0.5% decline at the end of the fourth quarter of 2022 (Oct¨CDec), official data showed on Thursday.?A country is considered to be in?recession?when its GDP falls for two successive quarters.
And soon after Germany, all 20 Eurozone nations were confirmed to be in recession in June this year.
Also, uncertainty about energy prices has likely contributed to a ¡°plunge¡± in business sentiment, Holger Schmieding, chief economist at Berenberg, wrote in the note, as per the CNBC report. He added that ¡°the current policy uncertainty and the dismay about half-baked government plans are not structural factors that look set to hold back the German economy for long.¡±
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Just as important will be attracting new talent. Germany has liberalised its immigration rules, but the visa process is still glacial, and Germany is better at welcoming refugees than professionals. Attracting more skilled immigrants could even nurture home-grown talent if it helped deal with the chronic shortage of teachers. In a country of coalition governments and cautious bureaucrats, none of this will be easy. Yet two decades ago, Germany pulled off a remarkable transformation to extraordinary effect,?as per The Economist report. It is time for another such transformation.??
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