German economy is ‘unraveling’ – Bloomberg

Germany is approaching a point of no return amid a deepening economic downturn and political uncertainty, Bloomberg reported on Monday.

Facing a second year of zero growth, the EU’s largest economy is on a path to decline that threatens to become irreversible, the outlet warned.

Estimates show that after five years of stagnation, the German economy is now 5% smaller than it could have been if the pre-pandemic growth trend had persisted.

The global economic slowdown, along with years of “poor” decisions has hit Germany hard, the article stated. Its export-driven industry, accounting for about 30% of its GDP, faces structural challenges, such as the loss of cheap Russian energy and the struggles of automotive giants Volkswagen and Mercedes-Benz, hit by soaring energy costs and increased competition from China.

The decline in national competitiveness translates to a loss of around €2,500 ($2,600) per household annually, according to Bloomberg calculations. The “unraveling” of the German economy would send ripples across the rest of the EU, experts warn.

”Germany doesn’t collapse overnight. That’s what makes this scenario so absolutely gut-wrenchingly terrifying,” Amy Webb, CEO of Future Today Institute, which advises German companies on strategy, told the outlet. According to Webb, a gradual, prolonged downturn will affect not only German companies or cities, “but of the entire country and Europe gets dragged down with it.”

The slump comes at a time when the country is preparing for a snap election in February. Chancellor Olaf Scholz’s three-party coalition collapsed earlier this month following the ousting of Finance Minister Christian Lindner.

German Economy Minister Robert Habeck, who intends to run for chancellor next year, said on Sunday that his country had been forced into a corner by insufficient investment into its infrastructure and skilled workforce.

On Friday, the German central bank slashed its growth forecast for next year to 0.2%, from the 1.1% level it had predicted in June. The regulator also said it expects the economy to contract by 0.2% this year, having previously predicted modest growth of 0.3%.

”The competitive position of German industry has worsened,” Joachim Nagel, president of the Bundesbank, said earlier this month. “Growing foreign markets have not provided growth impulses as they did in the past.”

Germany’s once-booming automotive industry is expected to lose its market share and speed up the relocation of production abroad, according to economists at Bantleon. As a result, the sector could lose up to 40% of its value-added in Germany over the next decade.

The German economy has been falling behind its peers in recent years, largely due to a prolonged manufacturing downturn. Germany was the only Group of Seven economy to contract in 2023.