Trade deficit, half-staff growth… when the German example is in the dark

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Weakened by rising energy prices and supply difficulties, Germany is wondering about the sustainability of an economic model that has long been a benchmark in Europe.

For several weeks now, clouds have been gathering in the sky over the German economy: inflation reached a record level of almost 8%, growth is slowing and the trade balance is in the red for the first time in thirty years.

According to the latest forecasts of European Comission published on Thursday July 14, German growth, long considered the locomotive of the EU-27 economy, should only reach 1.3% in 2023, compared to 1.5% on average in the euro zone.

A sign that something is amiss for the world champion export nation, the country posted a €1bn trade deficit in May. Unprecedented since 1991, the year that followed reunification.

After benefiting for decades from cheap energy, the industry, which accounts for nearly a quarter of the country’s GDP, now pays for its over-reliance on gas in Russian. “And the fears are great that there will be no resumption of deliveries after the maintenance of the north stream gas pipeline 1 scheduled until July 21,” recalls Line Rifai, economics columnist for France 24.

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Meanwhile, the energy bill skyrockets: “Natural gas imports in value more than doubled between April 2019 (…) and April 2022 and oil imports increased by 55% in the same period,” he says. Les Echos newspaper.

To save its emblematic automotive or chemical companies, which are highly energy-intensive (almost a third of the gas burned in Germany is consumed by industry), the Government activated at the end of June the second level of your emergency plan and does not exclude rationing for individuals.

Malfunction of the machine of globalization

Although the rise in energy prices and the geopolitical context largely explain the current difficulties, Germany is also penalized by its privileged relationship with the Chinese giant.

Berlin’s main trading partner, China represents an extraordinary outlet for its automobile sector, which generates almost 30% of its turnover there. However, this horizon is shrinking. Chinese demand is falling, covid zero strategy reducing household consumption. With just one million cars sold in April, sales fell 35.7% year-on-year in China. “We must diversify our international relations, including for our exports,” explained Christian Lindner, German Finance Minister in an interview with the Die Zeit newspaper.

As a centerpiece in the globalization of the 2000s, Germany is also at the forefront in the logistical chaos caused by the post-Covid-19 recovery. Supply interruptions heavily penalize its industry, which is used to importing low-cost components and then assembling them under the “Made In Germany” label. Added to these material shortages are hiring difficulties for companies, in particular due to low unemployment and the aging of the population.

Increased salary demands

Therefore, the German machine sees how the main levers of its growth are paralyzed one after another. Simple bad luck linked to the global context or sign of a model that has reached the end of a cycle?

“We are probably entering the beginning of a weaker period for Germany. If in the past we have always seen this country play the role of a model, perhaps it is time to take a realistic view of its strengths and its weaknesses. Nobody is perfect.” “. Achim Truger, one of the government’s economic advisers, told Reuters.

Especially since after decades of a wage moderation policy that allowed companies to reduce costs, the demands of the German unions are becoming louder, despite minimum wage increase scheduled for October.

In June, a large part of the German longshoremen in Hamburg and Bremen stopped working. More recently, the powerful German union IG Metall demanded an 8% wage increase next year for the 3.8 million workers in the industrial sector. Now he is preparing to attack.

Claims received coldly by the German employers who criticize a union that has become “blind to the reality of the industry”, reports The Tribune newspaper. Here again, it is a pillar of the German model that is faltering: that of consensus, until then the guarantor of the country’s economic stability.

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