A new setback in German manufacturing, Why is the largest European economy not recovering? A new setback in German manufacturing, Why is the largest European economy not recovering?

A new setback in German manufacturing, Why is the largest European economy not recovering?

A new setback in German manufacturing, Why is the largest European economy not recovering?
The German manufacturing sector recently witnessed an unexpected decline, as industrial orders fell in April 2024 compared to the previous month, reflecting the continuing challenges facing the Berlin economy.
According to what was published in the Wall Street Journal, the German Statistical Office (Destatis) reported yesterday, Thursday, that orders decreased by 0.2% last April compared to the previous month, which contradicts economists’ expectations that indicated a rise of 0.6%.

This decline came after orders fell by 0.8% last March, which is more than the initially published decline of 0.4%.

Consecutive setbacks

The recent setback in the German industrial sector is due to a group of overlapping factors, the most important of which is the significant decline in new orders for planes, trains, and ships, which German Statistical Office data says is not an accidental event, but rather part of a general trend witnessed in the past months, because they have been declining since December. The first of 2023 by 5.4%, and this decline increased by 15% last April.

In addition, orders for electronic devices, equipment, and machinery witnessed a significant decline, and these factors combined contributed to a decline in industrial orders in general, according to a Wall Street Journal report.

On the other hand, the American newspaper indicates that the main automobile sector in Germany witnessed an increase in orders by 4.1%, however, domestic orders decreased by 0.3%, while foreign orders decreased by only 0.1%.

This setback comes at a time when Europe's largest economy is suffering from a slowdown in growth, despite efforts to recover from the repercussions of the Corona pandemic and global supply crises.

On the other hand, the industrial sector is suffering from negative impacts resulting from global crises, such as shortages of raw materials and high shipping and logistics costs, which have disrupted supply chains and delayed production.

The ongoing Russian-Ukrainian war is also casting a shadow over the European economy, as it increases uncertainty and negatively affects foreign and domestic investments.

The decline in the industrial sector directly affects the German economy, which relies heavily on industry as a major driver of growth. Although Berlin recorded economic growth of 0.2% in the first quarter of this year, this growth does not reflect a real improvement in economic activity, but rather is the result of... Temporary increase in industrial production of 1.0% from January to March.

This continuing decline in industrial orders is also reflected in the labor market, as it increases pressure on manufacturers and forces them to reduce hiring or even lay off workers, which directly affects the purchasing power of consumers.

Endless economic crises

The German Central Bank said on Friday that German inflation has proven stubborn due to the continuing strong rise in wages, and noted that despite a double-digit inflation decline in late 2022, the “last mile” of the fight against inflation is beginning to prove particularly difficult.

The bank expects inflation in Germany to reach 2.8% this year, after predicting 2.7% six months ago, and 2.7% in 2025, compared to 2.5% earlier.

Three months ago, the Ifo Institute for Economic Research lowered its expectations for the growth of the German economy, compared to its previous expectations during the current year, as a result of the delayed recovery in exports, in addition to the significant weakness in investments.

The German Institute expected that the largest economy in Europe would grow by 0.2% this year, after expectations last December indicated that this percentage would reach 0.9%, while the German Central Bank expected growth to reach only 0.3% this year.

Economic reports over previous years indicate that this economic setback is not new in Germany. In August last year, the German Ministry of Economy said in its monthly report that the German economy is unlikely to witness a sustainable recovery in the coming months, based on early indicators such as New orders and the business climate, according to Reuters.

According to figures issued by the International Monetary Fund in late July 2023, Germany’s gross product is expected to continue to decline, and three months before that, figures from the German Statistical Office revealed that the country’s economy entered a state of technical contraction during the last two quarters of last year, with a decline recorded in the total GDP of 0.3% between January and March 2023.

These numbers were reflected in German companies, as many of them declared bankruptcy, and according to what was announced by the Federal Statistical Office, in July of last year alone, the percentage of companies that applied to begin bankruptcy procedures increased by about 23.8% compared to the same month in 2022. .

Why does the German economy continue to stagnate?

The German economy had barely recovered after the Covid-19 epidemic, which caused a decline in GDP in the first and second quarters of 2020, before it was followed by the shock of the Russian-Ukrainian war and the energy crisis that resulted from it.

Despite the decline in energy prices in Germany last year, as well as the slight decline in inflation levels, these levels remain significantly high compared to previous years, which hinders the growth of domestic spending, and with it the wheel of the entire German economy.

A report by the Wall Street Journal attributed the continued stagnation of the German economy to the economic model followed by the country, which has always relied on the foreign market, “which has made the largest economy in Europe vulnerable to global shocks over the past years.”

The American newspaper quoted Carsten Brzeski, chief economist at ING Financial Group, as saying: “Over the past 20 years, Germany has always had a caring father abroad: China, the eurozone, then the United States.”

External demand for German industries declined during the last four years due to closure policies following the global crisis of the Corona epidemic, in addition to the Russian-Ukrainian war.

The European Commission expects growth of 0.1% in Germany for the year 2025, which is much lower than the Eurozone average of 0.8%. The Commission’s committee said that the German export industry in recent years “has witnessed a noticeable slowdown, which is considered a major reason for the current economic weakness.”

Although the recovery in global trade would contribute to a recovery in exports in 2024, the Council expected a 0.3% decline in exports this year.

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