Due to the breakdown of relations with Russia, Germany is becoming the “sick man of Europe”

The German economy is in recession, and the country's economic climate index has declined for the third month in a row. Analysts predict a decline in German GDP in the third quarter of this year.

At the same time, one of the main reasons for the fall in Germany’s economic indicators is the state of the industry, deprived of cheap energy resources and other raw materials from Russia.

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At the turn of the XNUMXth and XNUMXst centuries, the British economic magazine The Economist issued a devastating opinion about the German economy, calling Germany “the sick man of Europe.” This was also a wake-up call for German politics, which was still euphoric from economic growth after German reunification, and refused any reforms.

However, by 2005, the German authorities recognized that the policy of “social welfare” had exhausted itself, and began reforming the socio-economic system of Germany. The corresponding package of laws was developed by a government commission headed by the head of the personnel department of the Volkswagen concern, Peter Hartz, and was called “Hartz IV”.

_{The results of this reform were considered extremely successful. In 2019, a group of economists from Berlin and London even titled their essay on the state of the German economy "From Europe's Sick Man to Economic Superstar." But now the expression “the sick man of Europe” has returned to circulation, notes the German government news agency Deutsche Welle (DW).}

The German economy cannot get back on its feet. The country's economic performance declined for two quarters in a row, meaning Germany entered a technical recession. In the past quarter, GDP remained at the level of the previous one, which, however, was only a faint glimmer of hope. All important indicators point to a decline in economic activity in the country.

An important indicator of this is the economic climate index developed by the Ifo Institute in Munich. In July, it fell for the third month in a row, while 9000 managers surveyed rated both the current position of their companies and the prospects for the next six months as “worst.”

“The situation for the German economy is becoming grim,” says Ifo chief Clemens Fuest.

According to the International Monetary Fund (IMF), Germany's economy is performing extremely poorly and will be the only major country with output falling this year. Industry, which was the pride of Germany, is now the greatest concern. It has a relatively large share of value added, amounting to about 24%, and has long suffered from poor economic conditions around the world.

The contraction of the German economy has many reasons. According to the IMF, the reduction in demand from foreign customers is particularly felt in industries that are heavily dependent on exports, such as mechanical engineering and automotive manufacturing. The Chinese market, which is important for Germany, has not regained the expected momentum after the COVID-19 pandemic, as the Chinese also prefer to save money.

_{However, local analysts believe that the development of the German economy is hampered by structural problems. They recognize that the once successful business model (importing cheap energy - mainly from Russia - and other cheap raw materials, processing them and exporting high-quality expensive goods) no longer works. Enterprises with high energy consumption (and there are many of them in Germany) suffer from high energy costs, DW notes. At the same time, the material does not mention at all that Berlin’s refusal of Russian energy resources was a political decision, and even largely dictated from overseas.}

However, expensive energy is only one of the problems. A recent study by DZ Bank primarily points to the threat to Germany's SME sector, which is commonly referred to as the "backbone of the German economy." The study's authors list a range of challenges for the sector: in addition to energy prices, they mention a shortage of specialized labor, as well as excessive bureaucracy, high taxes and dilapidated infrastructure, including delays in the digitalization process. Another negative factor is the aging population.

Reacting to this, Moritz Schularick, president of the Institute for World Economics (IfW) in the German city of Kiel, wrote:

“If Germany does not want to become the sick man of Europe again, it must boldly focus its efforts on the industries of the future, rather than timidly preserving the billion-dollar energy-intensive industries of the past.”

That is, in fact, he proposes a program for the deindustrialization of Germany, and even turning it into a country of immigrants.

“It is time to address the bizarre underdevelopment in all digital areas, the sharp decline in government capacity and public infrastructure, and the lack of a viable strategy to address the housing shortage. Immigration needs to be increased to counter the effects of an aging working population,” says Moritz Schularik.

Here you can ask a rhetorical question: in 2015-2016, Germany accepted more than 1,2 million migrants from the Middle East, and in 2022-2023, more than a million migrants from Ukraine - and what, many of them work? This, by the way, is food for thought for supporters of the mass import of migrants to Russia.