Germany Goes Bust
Growth in the world’s 4th largest economy stagnates
The Coronavirus Pandemic led to one of the largest economic downturns in recent history. Worldwide, developed countries saw their growth stifled, as many major economies shrunk due to lockdowns and job losses
Germany’s economy was one of the strongest in the world, and one of the few able to weather previous crises without much trouble. With a focus on manufacturing and exports, Germany was normally able to recover through increasing it’s exports. But in the pandemic, with supply lines backed up, and materials hard to come by, Germany has seen an extremely sluggish bounce back.
The US saw a drop in its Gross Domestic Product of 3.5% in 2020. This was only slightly less than the global drop of 3.6%. This was while grappling with one of the worst outbreaks of the coronavirus, with over 20 million cases by the end of the year. The US’s recovery, on the other hand, has been impressive, with an estimated increase of 6% in our fourth quarter GDP estimates. This is undeniably impressive, even if this has been coupled with inflationary pressures across consumer goods.
This trend, however, has been observed across the world. Most major developed economies have seen returns to the norm, with steady growth bringing their GDP to near pre-pandemic levels. However, that’s one trend that Germany has not been emulating.
While countries like France, Britain, and Italy are poised to see large gains in 2021 and 2022, Germany lags far behind. The country has seen a GDP growth of around 2.7% — after a drop of nearly 5% in 2020. The numbers are worrying for the country, and upon further examination, there’s more factors at play.
As I said before, Germany is, on the whole, a manufacturing economy. They’re a major exporter, and one of the powerhouses of the Eurozone. Their stuttering growth could have disastrous effects on their trading partners. Exporting vehicles and electrical goods, the short supply of parts has led to Germany seeing significant cutbacks in manufacturing, and if that issue isn’t resolved, Germany may continue to experience extremely slow growth.
That 2.7% figure is made all the more worrying when taking into account the quarterly growth in the country. Germany shrunk almost a full percent in the last quarter of 2021, and growth seems to be slow for the first quarter of 2022 as well. Should conditions not improve, Germany could see a second straight quarter of declining GDP, and find itself in the midst of a second recession right out of the pandemic. And while this would normally be manageable, with Germany’s current energy crisis, the combinations of factor could lead to significant long term problems for the country.
The third factor casting shadows on Germany’s growth is the outsized effect that BioNTech and Pfizer have had on its economy. The two companies were responsible for almost .5% of Germany’s GDP growth in 2021 — which means the rest of the economy grew by an even more dismal 2.2%.
These companies’ effects are due to the vaccines, of course, but should those shares of German GDP decline in the coming year, Germany could find itself in an even more dire situation.
All in all, Germany’s economy is dealing with significant stagnation after a devastating drop from the pandemic, and is currently experiencing some of the slowest growth in Europe. Hopefully, the economy will see an upturn in Q1 of 2022, but the current forecast relies entirely on the cost of inputs decreasing for the German manufacturing center.
Here’s the hope it works.
