It is difficult to find a more eloquent illustration of Germany’s current economic lethargy: on Thursday March 7 and Friday March 8, millions of people will be prevented from traveling by train and plane across the country, due to two simultaneous strikes at Deutsche Bahn and Lufthansa. Those who dare to take the overcrowded highways should experience serious delays. For months, these work stoppages have been affecting the economy at an almost monthly rate. If the workers’ demands – catching up with the high inflation of recent years – are perfectly justified, the cumulative effect acts as an amplifier of the current recession.
“The German economy is paralyzed”summarized economist Timo Wollmershäuser, Wednesday March 6, during the publication of growth forecasts from the Munich institute (Ifo). “Consumer caution, high interest rates and price increases combine with the government’s austerity policy and the weakness of the global economy to slow down the economy. We are going through a new winter recession,” did he declare. The institute has sharply lowered its growth forecasts: Germany should only experience very limited growth in its economic activity, at 0.2%, in 2024, compared to 0.9% anticipated so far. The institute estimates that the rebound should occur in 2025, with 1.5% growth. Inflation has fallen significantly. It should return to 2.3% on average in 2024.
The Kiel Institute for the World Economy (IfW), which also published its growth forecasts on Tuesday March 6, provides a similar observation. The German economy is expected to grow by only 0.1% in 2024 and 1.2% in 2025, estimates the IfW. The recovery in consumption and exports are much less dynamic than expected and private investment is extremely weak, note economists, who deride the policy currently pursued by Berlin. “The government’s efforts to reduce public spending come at the worst time and reflect additional pessimism,” notes Moritz Schularick, president of the institute. “More and more signs indicate that it is mainly structural problems that are weighing on the economy. The weak point remains private investments, which are very limited, in particular because economic policy fuels a lot of uncertainty”adds economist Stefan Kooths.
If structural explanations dominate the analyses, it is because an essential factor has disappeared from the list of obstacles to the economy: energy prices. To everyone’s surprise, wholesale electricity prices have fallen back to their 2020 level. Certainly, they remain higher than in other countries, it will take a few months for the effect on bills to be felt. And nothing prevents a new energy shock. But the idea that Germany deprived of Russian gas should get used to structurally higher prices than before the war in Ukraine has been undermined. The debate on an energy subsidy for industry, which tore the government apart for months, no longer needs to be made.
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