Germany, a bad student of the European recovery

Germany, the EU’s largest economy, expected a strong recovery in 2021, but that was without taking into account the deficits and the continuation of the health crisis that have slowed growth, the figures of which were released Friday. The government has had to adjust its ambitions downwards and is counting on GDP growth of 2.6% for the whole year.

It’s almost a humiliation when the expected average growth in the EU is 5%, according to the latest European Commission forecasts, with increases to 6.5% in France or 6.2% in Italy. It is also a thorn in the side of the plans of the coalition of Social Democratic Chancellor Olaf Scholz, who took power in December to fund major projects.

“The year 2021 was a big disappointment for Germany”, sums up the economist Carsten Brzeski of the bank ING for AFP. Adding to the new wave of Covid-19 infections at the end of the year, now fueled by the Omicron variant, was the impact on the “made in Germany” of the problems with the supply of raw materials and components.

The car is still struggling with shortages

For the sectors of activity, especially services, which have been hit by the health crisis, “reserves are getting thinner, profits are declining, investment is slowing down,” Economy Minister Robert Habeck summed up on Thursday. For industry, the engine of the national economy, the long-term consequences of the global supply chain crisis appear.

In December, nearly 82% of companies surveyed by the IFO Institute reported shortage problems. The automotive industry, a leading industry, suffers especially from the lack of semiconductors, essential elements for vehicle construction. The sector experienced another dark year in 2021, with registrations falling 10.1% from the historically low level of 2020. No improvement is expected in the short term: “We must be clear: the semi-trailer driver crisis is far from over, Stefan Hartung, CEO of car supplier Bosch, recently told Focus magazine.

In 2021 and 2022, these shortages are expected to lead to a total loss of 100 billion euros for German industry, industry association BDI estimated on Thursday. “Despite full order books, the lack of electronic chips, components and raw materials will continue to affect production for a long time to come,” said chairman Siegfried Russwurm. These shortages are fueling record inflation, also driven by rising energy prices, dampening consumer morale already tarnished by the health crisis.

An improvement expected from spring

The situation is therefore delicate for the government of Olaf Scholz, allied to the ecologists and liberals. The weak economic situation could reduce the room for maneuver of the new coalition, which aims to make massive investments to modernize and green its economy. Berlin nevertheless approved at the end of the year a €60 billion extension to the 2021 budget, intended for additional investment, mainly in favor of the climate.

The government expects a gradual improvement in the situation. According to the Bundesbank, this should happen from “next spring”. Germany should grow by 3.7% in 2022, according to forecasts from the IFO Institute. During the nightmare year of 2020, the country had limited damage with a recession of “just” 4.9%. “Once Omicron is over and the supply chain issues are resolved, the German economy will quickly become the economic engine of the eurozone again,” summarizes Carsten Brzeski.

Robert Habeck, the first ecologist to hold a super-department of the economy and climate, also plans to change the perception of GDP as the alpha and omega of economic policy. According to information from the weekly magazine Spiegel, he wants to emphasize other criteria in his economic annual report, such as the “conservation of resources” and “climate protection”.

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