Germany, a bad pupil of the European recovery

Germany, the EU’s largest economy, expected to rebound strongly in 2021, but that was without counting the shortages and the continuation of the health crisis which slowed down growth, the figures of which were unveiled on Friday. The government had to revise its ambitions downwards and is counting on a 2.6% increase in GDP for the year as a whole.

It’s almost a humiliation when the average expected growth in the EU is 5%, according to the latest projections from the European Commission, with soaring to 6.5% in France or 6.2% in Italy. It is also a thorn in the plans of the coalition of Social Democratic Chancellor Olaf Scholz, which came to power in December with major projects to finance.

“The year 2021 has been a great disappointment for Germany,” said economist Carsten Brzeski, of the ING bank, for AFP. To the new wave of Covid-19 infections at the end of the year, now fueled by the Omicron variant, has been added the impact on the “made in Germany” of the supply problems of raw materials and components.

The automobile still suffers from shortages

For sectors of activity, especially services, affected by the health crisis, “reserves are increasingly meager, profits are declining, investments are slowing,” said Economy Minister Robert Habeck on Thursday. For industry, the engine of the national economy, the consequences of the global supply chain crisis seem to be lasting.

In December, nearly 82% of companies surveyed by the IFO institute reported problems with shortages. The automotive industry, a flagship industry, suffers particularly from the lack of semiconductors, essential elements for the construction of a vehicle. The sector received another dark year in 2021, with registrations down 10.1% compared to the historically low level of 2020. No improvement is expected in the short term: “We must be clear: the semi -conductors is far from over, ”Stefan Hartung, CEO of automotive supplier Bosch, told Focus magazine recently.

In 2021 and 2022, these shortages should result in a total loss of 100 billion euros for German industry, estimated Thursday the organization of the BDI sector. “Despite full order books, the shortage of microchips, components and raw materials will continue to affect production for a long time,” says Chairman Siegfried Russwurm. These shortages are fueling record inflation, also driven by soaring energy prices, which is slowing consumer sentiment, already damaged by the health crisis.

An improvement expected in the spring

The situation is therefore delicate for the government of Olaf Scholz, allied with environmentalists and liberals. The poor economic situation could reduce the room for maneuver of the new coalition, which has set itself the goal of massive investments to modernize and green its economy. Berlin nonetheless approved at the end of the year an extension of 60 billion euros to the 2021 budget, intended for additional investments, mainly in favor of the climate.

The government is banking on a gradual improvement in the situation. According to the Bundesbank, this should occur from “next spring”. Germany should experience growth of 3.7% in 2022, according to forecasts from the IFO institute. During the nightmarish year 2020, the country had limited the damage with a recession of “only” 4.9%. “As soon as Omicron has passed and the supply chain problems are resolved, the German economy will quickly become the economic powerhouse of the euro zone again,” summarizes Carsten Brzeski.

Robert Habeck, the first environmentalist to occupy a super ministry for the Economy and Climate, also intends to change the perception of GDP as alpha and omega of economic policy. He wishes, in his annual economic report, to highlight other criteria, such as “preservation of resources” and “protection of the climate”, according to information from the weekly Spiegel.

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