recession in Germany
We finally have to talk about growth
A commentary by Ulrich Reitz
05/25/2023 11:44 am
The German economy is shrinking. Also because inflation is so high. European monetary policy cannot help here – on the contrary. What matters now is that politicians finally take their promise of “growth policy” seriously.
Economic miracle with a difference. Germany’s economic power is not increasing. On the contrary – it is shrinking. The R word is doing the rounds. The German economy slides straight into recession. That was feared again and again. For a long time it was hoped that things would take a turn for the better. from the dream. In the first quarter of the current year, economic output fell by 0.3 percent. And so for the second time in a row. Economists speak of a “technical recession”.
The burglary isn’t that bad. It could have been worse given the many challenges that had to be overcome in the past months and years. Above all, the Russian war of aggression against the Ukraine left economic marks in Germany and cost us prosperity. No wonder: All energy alternatives are more expensive than the oil and gas previously bought in Russia. This makes many products more expensive and causes high inflation.
And yet the current figures do not bode well for the rest of the year. The interest rate hikes by the ECB are taking effect with a time lag and are taking effect now, of all times, when Germany is facing a number of other challenges – from weakening exports and falling consumer spending to industrial structural change.
Monetary policy will not ensure that Germany’s economy grows again quickly. As well as? The best way to combat inflation is by increasing interest rates. In order to stimulate growth, however, low interest rates would be necessary. Then a lot is consumed and invested.
That was possible in the past, when the Bundesbank was still setting the key interest rates for Germany. However, monetary policy has long been European, and for good reason. However, because not all euro countries are slipping into recession and inflation is still high, the European Central Bank is unlikely to decide to turn around interest rates, or at best to pause interest rates.
The federal government is asked. So that Germany’s economy does not shrink even further and gets moving again, the chancellor and his ministers must finally implement the promises of a “growth policy” into practice. This includes making Germany an interesting investment location for companies again. Mainly through lower taxes, competitive energy costs and a lot less bureaucracy.
The federal government must also finally ensure less dispute and chaos, but more reliability and clarity. Everyone in Germany would benefit from more predictability. That would certainly also help to stimulate consumption again. The back and forth when replacing the heating system, for example, unsettles and overwhelms many consumers. If you don’t know what additional costs are to be borne by regulations and laws that don’t seem to have been thought through, you’ll keep your money together and spend less. The downward spiral then accelerates.