Domestic demand has shrunk, but overseas sales channels have also been blocked… The Chinese economy is in a difficult situation. [위기의 독일 경제 ③]

Inflation triggered by the Ukraine War and growing protectionist barriers between countries due to the US-China trade dispute are also contributing to the German economic crisis, which has led to a decline in domestic and foreign consumption.

The International Monetary Fund (IMF) explained that Germany’s energy costs soared as natural gas supplies were cut off from Russia due to the war in Ukraine, and prices of other daily necessities and services also rose, causing inflation. The BBC reported that as the European Central Bank raised interest rates to prevent inflation, home construction and mortgage costs rose, and as disposable income decreased, consumers were avoiding spending.

According to the Financial Times (FT), Germany’s GDP per capita (purchasing power parity) decreased from 89% of the US level in 2017 to 80% in 2023. This is the largest decline among G7 member countries during that period. German household final consumption expenditures in the second quarter also decreased by 0.2%.

“The negative news about job security is making consumers more pessimistic,” said Rolf Buerkel, a consumption expert at the Nuremberg Institute for Market Decisions (NIM). “It seems unlikely that consumer sentiment will recover quickly.”

Foreign trade, a strength of the German economy, has also been weakened by rising protective tariffs and other trade barriers around the world, leaving little hope for a strong export-led recovery, Dutch financial company ING analyzed. Germany’s exports of goods and services in the second quarter decreased by 0.2% compared to the first quarter due to weak global demand and supply chain disruptions. ING warned that inventory at German companies is piling up due to weak orders in the manufacturing sector.

CNN reported that the glory days in China, which had been highly dependent on China and enjoyed rapid growth and huge profits, especially in the electric vehicle market, are over. Germany’s dependence on China is very high compared to other developed countries. According to the Wall Street Journal (WSJ), the share of German automobile and capital goods exports to China is about one-fifth of Germany’s GDP. This figure is twice higher than in the United States. However, the German economy has suffered a blow as Germany’s exports to China have decreased due to the recent economic downturn in China.

The rapid growth of Chinese competitors in the fields of electric vehicles and mechanical equipment has also dealt a blow to German manufacturers. According to German trade statistics, China overtook Germany in 2020 to become the largest exporter of machinery and equipment. Today, China produces more industrial machinery than the United States, Germany, and Japan.

The Kiel Institute for World Economic Research, an independent research institute, analyzed that the reason Volkswagen, the world’s second-largest automobile manufacturer and Germany’s national car, recently announced that it was considering closing plants and reducing jobs in Germany for the first time in its 87-year history was due to the sluggish performance in the Chinese market. Just 10 years ago, Volkswagen earned an operating profit of 5.2 billion euros through its Chinese joint venture, but this year’s operating profit is expected to decline by nearly 70% to 1.5 billion euros.

Moritz Schlarik, chairman of the Kiel Institute for World Economic Research, said, “Volkswagen’s problems are the problems of the German economy,” and added, “The Chinese market has changed from a tailwind to a headwind for the German economy.”

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