Tuesday, September 12, 2023

El País: "Germany is staring at the end of its economic model"

From El País, September 4:

The war in Ukraine and its repercussions, compounded by structural problems such as an ageing population and a lack of investment, spell the end of the boom

Ever since Russian Tsar Nicholas I coined the phrase “the sick man of Europe” in the mid-19th century, this has been a term that has changed hands like a boxing belt over the years. Originally used to indicate the decline of the Ottoman Empire, it has evolved into the favorite description of a great economy in decline. While in recent years the United Kingdom has had the dubious honor of holding the title, the war in Ukraine and its aftermath have brought a new candidate to the fore: Germany. The world’s fourth largest economy and Europe’s biggest is in turbulent waters and is confronting structural problems that could spell the end of almost two decades of prosperity for the Old Continent’s economic powerhouse. According to the International Monetary Fund (IMF), it will be the only developed economy that does not experience growth this year.

You have to go back to the early 2000s to find the last time when Germany challenged for the title, when its economy was deflating — with GDP falling in two consecutive years in 2002 and 2003 — and struggling with poor external demand and double-digit unemployment rates. Gerhard Schröder, chancellor from 1998 to 2005, initiated a series of reforms that triggered a jobwunder (employment boom) and, combined with healthy foreign demand from booming economies such as China, boosted the German economy’s backbone. This comprises a competitive manufacturing sector, largely thanks to cheap Russian gas and Eastern European labor. These factors have propped up Germany for almost two decades, making it Europe’s leading force. However, some experts warn that its success may have caused Berlin to become complacent.

The German economy is now a far cry from the boom of the past decade: in the second quarter, its GDP remained stable (0.1%), after entering recession at the beginning of the year, and it has not experienced a real upturn since September 2022. In addition, inflation, the scourge of the past few months, is proving particularly resilient in Germany, which has been hardest hit by the energy crisis. High inflation and economic downturn have led to stagflation. That said, the nation does boast the lowest unemployment rate in the eurozone, and for economists such as Clemens Fuest, director of the Leibniz Institute for Economic Research (IFO), that renders the “sick man” label a slight exaggeration.

In terms of households, the signs ring true to the thrifty German mindset: while wages rose at their fastest pace ever in the second quarter (6.6%) — fueling fears of worsening inflation — household consumption remained stagnant, and consumer confidence indicators are sliding....


There must be something in the air, this is our second link in a week that referred to "The sick man of Europe." Here's hoping gentle reader doesn't catch whatever is going around.

And here's the earlier usage, September 4: "Germany is the ‘sick man of Europe’ — and it’s causing a shift to the right, top economist says".