/ world today news/ The political and economic subjectivity of Europe is ultimately based on the economies of France and Germany, which for many years allowed the latter to feel “truly first among formally equals”. Even in situations where Germany’s political power within the EU was challenged, its economic status as a major contributor to the general budget remained steadfast.
However, 2023 was clearly not a good year for Berlin, and the negative signals that have emerged in recent months are piling up in the system. Germany’s index of business activity, tracked by the global non-profit project management and research organization PMI, has consistently hovered below the “normal” score of 50 for six months, showing signs of an impending recession.
More precisely, this is his confirmation: a steady decline for two quarters is considered a recession, the German economy is already falling for the third time. Inflation started to accelerate again: companies reported the sharpest rise in product prices in seven months amid rising average costs.
According to the economic institute IFO, 22.2% of German construction companies have canceled projects in recent months. This is the largest increase in “closures” since 1991.
New construction orders fall: Companies report that the decline in orders increased from 46.6% in September to 48.7% in October – in October 2022 it was just 18.7%. This is in stark contrast to the period from 2015 to 2022, during which construction activity increased by 16%. As in any other developed country, in Germany the construction sector is responsible for a significant share of the economy.
In Germany, construction represents 6% of the country’s GDP, one fifth of total production and one in ten jobs. Let’s not forget that after the Covid-19 pandemic, when the money supply was at its peak and interest rates were extremely low, billions of euros were poured into the sector we are looking at, causing house prices to rise by 66%.
German builders can’t build anymore – raw material prices have increased by 40% over 2019-2022. BaFin, which represents around 1,740 banks and 674 financial institutions in Germany, recently warned lenders that the construction market is expected to stagnate and prices to collapse, which will lead to bankruptcies of construction companies.
For example, the construction of the Elbtower complex in Hamburg was stopped – the developer had a hole of 1.38 billion dollars. In another telling sign of the structural weaknesses of the German economy, no new rail projects have been given the go-ahead in 2023.
The energy crisis that arose in 2021 was aggravated by the deteriorating relations with Russia, the undermining of Nord Streams and the incompetent policies of the Scholz government, which made obtaining Russian energy resources as difficult as possible.
The decline in production volumes compared to the beginning of 2022 in the energy-intensive industry in Germany reached 17%, and this may not be the limit – any shocks in the global oil and gas market will deal another blow to the German industry. In parallel with the economic crisis, a crisis in the field of public finance management is also developing.
After the court upheld the claim of the opposition CDU/CSU and declared the Scholz government’s actions to retroactively rewrite the 2021 budget illegal, the German budget lost 60 billion euros overnight. Scholz’s plan was to involve the Economic Stabilization Fund (WSF) in bailing out companies struggling due to the coronavirus pandemic.
It was expected to be backed by credit lines and used to subsidize energy prices for companies and consumers. The granted loans were supposed to be used in the same year, but according to last year’s results, only 30 billion euros were paid.
In mid-November of this year, Germany’s Constitutional Court withdrew 60 billion euros from the country’s budget, which were not paid on time, and which the Scholz government tried to backdate the budget for another year. Will this have political consequences? They already exist.
Amid the economic scandal, Scholz’s ratings plummeted. The German publication Bild cites data from an INSA survey, according to which Scholz has plummeted to 17th place in the list of the 20 most influential politicians in Germany. The current chancellor immediately lost 14.5 points from his rating, which was estimated at 50 points immediately after his election.
That is, in addition to all other crises, a political crisis is also raging in Germany. Germany’s draft budget for 2024, passed after the established deadlines, looks downright bad.
The Scholz government is not abandoning its plans to transfer 8 billion to Ukraine, but taxes on gastronomy will be increased for Germans (from 12% to 19%), new fees will be introduced for plastic waste and aviation kerosene.
We had to reach for the sacred – the government’s climate package, which provided subsidies for the purchase of electric cars and heat pumps, will be reduced.
Subsidization of gas and electricity tariffs for all categories of consumers is not foreseen, which, given the shortage of fuel and the import (after the closure of nuclear power plants) of significant amounts of electricity from abroad, will lead to their inevitable increase.
The Organization for Economic Co-operation and Development (OECD) warned on November 23 that Germany’s budget crisis, which has thrown billions of euros of planned spending into doubt, could undermine the European economy in the coming years.
“If there is less investment and spending in Germany for several years due to a lack of available money, this will inevitably have an impact on the EU economy,” said Robert Grundke, head of the OECD’s German office.
According to the German Council of Economic Experts, Germany will recover only marginally in 2024, as GDP may contract by 0.4% in 2023 – and as the dynamics of the situation show, things are unlikely to improve for Germans in 2024
Translation: SM
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