Germany, the world’s third-largest economy after the United States and China, with a total GDP of $5 trillion, is in recession this year. In other words, it is not recording any significant growth.
This recession – German GDP is expected to grow by just 0.2% this year – comes on the heels of the global financial crisis. Two consecutive years of recession (i.e. a year in which the economy’s GDP shrinks rather than grows). These are the findings in the annual report of the German Council of Economists, an independent academic body established by law in 1963 and charged with providing periodic assessments of macroeconomic developments in Germany.
as table In addition to the performances, and far from leading the eurozone, Germany lags behind Europe, which lags far behind global averages. The Council of Experts identified several reasons that led to the faltering of the German economy.
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table.
The annual report prepared by the experts said: “In addition to cyclical factors, this weakness reflects structural changes and geopolitical shifts that undermine the traditional German export model.”
The biggest geopolitical upheaval this year has been the change in US leadership and that leadership’s approach to providing economic and security guarantees to traditional allies like Germany. This has forced European countries like Germany to rethink their security framework and find the necessary resources to fill the gaps that have arisen whether it is in the areas of defense or trade.
In Europe, too, the continuing fragmentation of the European single market for goods, services, and capital has prevented European countries from finding an effective response to new global challenges.
Finally, there are contributing factors even within Germany. “Domestic aspects such as the continuing decline in the competitiveness of German industries and the continuing aging of the population are also contributing factors,” the report states.
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When he first took power six months ago, German Chancellor Friedrich Merz pledged to boost growth. The government, led by Merz, unveiled a new financial package to boost the economy by spending money on strengthening the country’s infrastructure and investing in Germany’s defense capabilities. But despite the bold advertising, the implementation left much to be desired. Not surprisingly, Merz’s popularity has declined sharply.
So, what can Germany do to reverse this trend? For example, the Assembly of Experts suggests that increased fiscal spending by the government should be better targeted in order to boost investments.
Second, Germany should work towards closer integration of European economies, including removing obstacles to achieving a true single market for goods and services; The European Union is after all the second most economically integrated region in the world.
Third, reduce corporate taxes to stimulate companies. Finally, reduce wealth inequality by making it easier for the worst off to accumulate wealth through initiatives such as the introduction of the state-backed Long-Term Investment Account, designed mainly to enhance financial security in old age.
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However, if Germany does not quickly address its weak pace of economic growth, India, with a GDP of about $4 trillion, will find it easier to overtake Germany in terms of the overall size of the economy, and thus become the third largest economy in the world.
(tags for translation)Germany
