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While Germany has slipped into recession, the economy is doing better elsewhere in Europe. Some EU countries even grew in the first quarter. What are the reasons?
The fact that Germany slipped into recession in the winter half-year made it particularly clear once again: In terms of economic development, the Federal Republic is lagging behind in an international comparison. In the other large member states of the European Union, economic output increased in the first quarter of 2023.
In Spain and Italy, the price-, seasonally and calendar-adjusted gross domestic product (GDP) increased the most with an increase of 0.5 percent compared to the previous quarter. In France it increased at least slightly by 0.2 percent, as did the GDP in the European Union as a whole.
Deeper crash, stronger recovery
From the point of view of the economist Friedrich Heinemann from the Leibniz Center for European Economic Research, such fluctuations over individual quarters should not be overestimated. Those are snapshots. One should not overlook where the individual countries come from. According to Heinemann, the corona crisis has plunged the countries into recession at different depths.
In Spain, for example, growth in 2020 collapsed by more than 11 percent, in Italy by almost nine percent. In contrast, Germany got off comparatively lightly in the first year of Corona with a minus of 3.7 percent. “Countries that have fallen badly can also recover more quickly in the years that follow,” the ZEW expert told the newspaper tagesschau.de.
Vulnerable due to strong industry
Nevertheless, the numbers on German economic growth that were revised yesterday by the Federal Statistical Office should not be glossed over. Heinemann sees the minus sign, which is now before the first quarter, as a warning signal that weaknesses in the German economy are revealed. “As a heavily industrialized country, which has been a strength for a long time, Germany now faces major challenges. Especially with regard to the energy transformation,” says Heinemann. Unlike Spain, for example, which was not dependent on Russian gas and was more dependent on the tourism sector.
Stefan Kooths, Head of Economic Affairs at the Kiel Institute for the World Economy (IfW), sees it similarly. Even if the figures for the first quarter “on closer inspection” don’t look that bad to him, Germany is lagging behind in overcoming the crises of recent years. This is also due to the fact that Germany has a significantly larger industrial sector than other EU countries and the supply chains that have been disrupted for months are still very sensitive.
Location weaknesses as a burden?
ZEW economist Heinemann also sees weaknesses in Germany as a business location that are slowing down growth. For example, the excessive tax burden and the low number of hours worked by German employees in an international comparison. Politicians must take both seriously and see “that Germany might need different conditions.” Growth is being weakened more and more by the fact that companies cannot find enough workers.
Economics expert Timo Wollmershäuser from the ifo Institute in Munich assumes that the working population in Germany will continue to decrease from 2025. It is already the case that Germany is falling behind in terms of production progress, according to the ifo expert. This is related to the stagnation of the workforce, but also to the fact that leading technologies are increasingly being developed in other countries.
“We install technology that is manufactured in other countries and we have to make sure that we don’t lose touch,” said the Ifo economics chief. In particular, the key German industry – the car industry – is under pressure from competition from China and the USA. Also with a view to digitization or the recent excitement about the business with artificial intelligence, Wollmershäuser states: “The German model is under massive pressure.”