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The German economy, engine of growth in Europe, is marking time

The discrepancy is considerable. When France recorded growth of 7% in 2021, Germany, supposed to be the “engine of growth” in Europe, is showing a slow recovery: only 2.7% over the year, in particular because of a powerful brake in the fourth quarter.

According to data from Destatis, published on Friday January 28, the German economy shrank by 0.7% in autumn 2021, affected by the measures adopted to combat the fourth wave of the Covid-19 pandemic, as well as by industry shortages. The government, which was expecting growth of 4.1% in 2022, reduced this forecast to 3.6%.

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“The decline is stronger than anticipated, but all the forecasts are currently very uncertain. There is still sand in the wheels of world trade,” concedes Simon Junker, economist at the Berlin economic institute DIW. This is the reverse of the German economic engine: highly dependent on exports, it is sensitive to disruptions in global subcontracting chains.

Its industry has been hit hard by the problems of supply of raw materials, metals, paper, intermediate electronic parts, such as semiconductors, as well as by the rise in energy prices. These bottlenecks have prevented companies from fulfilling their orders.

“The Germans have saved 200 billion euros”

Added to this was the effect of anti-Covid measures, particularly in catering and in certain services and leisure (sport, events, culture, etc.), which have paid a heavy economic price for the pandemic. Domestic demand was unable to compensate for industry losses, as it had been able to do in the past.

Germany withstood the first part of the crisis well: in 2020, the recession was much less severe than elsewhere in Europe. In 2021, Germany is doing significantly worse than its neighbors. “The effect of the pandemic affects behavior differently from country to country. In Germany, many people avoid crowded places or certain businesses on their own. The vaccination rate remains below that of France or Italy,” continues Mr. Junker.

“The order books are full, we can expect the industry to pick up very strongly during the year”, Simon Junker, economist at the Berlin economic institute DIW

The question is how long this hampered recovery will last. Most economists remain optimistic that activity will return to full strength in the spring and pre-crisis level in the summer of 2022. “As soon as the current wave of Covid-19 subsides, people should again spend more on their consumption. Admittedly, available purchasing power is currently being held back by high energy prices, but Germans have saved 200 billion euros during the crisis,” says Sebastian Dullien, chief economist of the Institute of Macroeconomics and Economic Research IMK.

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