Deutsche recession: Is Europe's largest economy in crisis?

The metaphor of the 'black sheep', is employed to bring all kinds of meaning to various socio-economic and political embarassments; subsequent to whispers of recession talk in Germany however, the world watches in suspense as Europe dubs Germany (the power house of the EU) the black sheep of Europe.  At the onset of 2023, economists noted a slump in the cogs of the engine. 

Germany has been an economic power house since the middle of the 20th century. Dubbed an economic miracle in the aftermath of World War II, Germany was as a catalyst, pulling the region through crisis after crisis. In the late 1990s and early 2000s, Germany overcame the challenges of reunification after the collapse of the Berlin wall and emerged stronger than before. This nature of resillience will be tested now, as the Deutsche coalition government tackles the challenges of the post-Merkel economy.

What pressured this mammoth economy to shake? 

Simply put, inflation. As buying prices soared, domestic consumption took the opposite road and declined. As of April 2023, inflation sits at 7.2%. Output in Europe’s largest economy dropped 0.3% in the first three months of 2023, following a 0.5% contraction at the end of 2022.The encumbered economy was refelcted in the decline of per-capita income and the decrease of household spending in Germany which dropped by 1.2% in the first quarter of 2023.  Undoubtedly the war in Ukraine 'fuelled' the price hikes and in turn prodded on inflation. German industry and industrial growth has been dependent on Russian gas which could be purchased for less. When Russia placed embargoes to cut Europe off gas supplies (following their invasion of Ukraine), the German economy suffered. Nevertheless, Germany stayed afloat with the increasing consumption of liquefied gas, but this proved to be unsustainable for a prolonged period of time. 

The risk? that Germany's intricately heavy integration in the economic activity of the European Union (accounting for almost 30% of the bloc's economic output) means that its recession will have repercussions on the other EU economies (it is the largest trading partner of more than half of the EU's 27 countries). In a silver lining however, May statistics have revealed that the recession might be temporary as it reflected an expansion in business activity. 

Sholz's solution 

German Chancellor Olaf Scholz's government has proposed a series of reforms that see Germany depending ever more on renewable energy in order to push aside their need to rely on Russian gas imports. At a press conference in Berlin, the Chancellor also pointed towards the increasing investment in German ship and battery manufacturing which is another indicator of the impermanence of the recession.