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WorldAsiaGermany is falling into the trap of economic recession. What are...

Germany is falling into the trap of economic recession. What are the reasons ?


According to official German data, Europe’s largest economy recorded a technical contraction in the first quarter of 2023, with the country’s gross domestic product shrinking by 0.3% between January and March 2023, after also shrinking by 0.5%. % between October and December 2022. , so Germany entered accordingly. In a technical contraction, this is a precedent since the pandemic which caused a decline in GDP in the first and second quarters of 2020.

Inflation remained a drag on the German economy at the start of the year, as reflected in household consumption, which fell 1.2% on a quarterly basis after adjusting for price and calendar, according to the German Statistical Office.

What is slack?

And while a technical recession is defined as two consecutive quarters of contraction, however, in general there is no specific agreement on the definition of a recession, as the National Bureau of Economic Research in America defines it. as “a significant decline in levels of economic activity”. , which lasts for a few months and is reflected in declining levels of output, employment, real income and other indicators”, and often begins when the economy reaches its peak of activity and ends when the economy is at its lowest levels.

On the other hand, the World Bank sees it represented in “the contraction of the economies of many large countries at the same time, in addition to other indicators indicating weak global economic growth, represented in the prolonged decline in domestic product, the high rate unemployment with the decline in aggregate demand for goods and services.

The German economy is losing its growth potential

In his interview with Sky News Arabia, economist Ali Hammoudi said, “German GDP data showed surprisingly negative signs as the German economy lost its growth potential, compared to other developed economies.”

Hamoudi added: “It is clear that the German consumer has suffered greatly under the weight of massive inflation, which has led to the decline of the whole economy, as the continuation of strong price increases has been a burden for the country’s economy at the beginning of the year, and this was reflected in particular in household final consumption expenditure, which fell. by 1.2% in the first quarter of 2023, and consumer spending in the first quarter is often affected by the energy price shock.

And the second trimester?

And with the inevitable economic recession in the first quarter of this year, the more important question will be whether the economy will recover in the second quarter of the year?

Economist Hammoudi responds to this question by saying, “The decline in purchasing power, the fall in industrial orders, the tightening of monetary policy and the expected slowdown in the American economy are all factors that contribute to the weakness German economic activity, but nonetheless the economy is expected to grow modestly in the second quarter. “Where there could be a recovery in industry that could offset the sluggishness in household consumption.”

Low purchasing power and high unemployment

In turn, the international economic adviser, Amer Al-Shobaki, says: “Germany has entered a technical recession after the economy has contracted for two consecutive quarters, and the drop in GDP is the drop in the industrial and commercial production, which will be reflected in all segments of society, and this translates into the decline in purchasing power and the high unemployment rate, which is one of the most important repercussions of the recession, while Germany must prepare for high unemployment rates after two quarters of contraction.

How did Germany reach recession?

The period of recession in the German economy over the past two quarters has been followed by a rise in energy prices, which has led to the exit of many investments from Germany, the shutdown of many industries and the bankruptcy of many companies. Shobaki.

The European Central Bank has raised the interest rate 7 times since last year, in an effort to control inflation, to reach the level of 3.75%, so that inflation in the countries of the zone euro slowed sharply from double-digit readings at the end of last year, as data from the European Union’s statistics office ‘Eurostat’ showed inflation hit 7% last April .

In its latest statement, the ECB kept its interest rate options open as its fight against inflation continues, but did not mention the need for further increases.

Second quarter forecast

Regarding his expectations for the German economy for the second quarter of this year, Al-Shobaki adds: “Despite the drop in gas prices, which seem to be at their lowest since 2021, and reasonable oil prices at 75 dollars for the Brent, Germany will suffer in the second quarter of this year due to rebounds in high energy prices.” On the rest of commodities, which means that if prices fall in the second quarter, its negative impact on the German economy will remain for the second quarter, in addition to the repercussions of high interest rates, which do not seem to be a glimmer of hope from the European Central Bank to reduce them because the inflation rate is still far from the 2% target of the European Central Bank.

Al-Shobaki claimed that the state of uncertainty in the German, European and even global economies will continue until mid-2024, “when the coming months will be accompanied by high interest rates”.

Bad energy policies

For his part, Tariq Al-Rifai, CEO of the Quorum Center for Strategic Studies in London, expects the pressure on Germany to be more severe in the coming period in terms of inflation and economic recovery due to poor government policies towards energy, indicating that many industrial companies have ceased operations in Germany or transferred operations to China and other countries.

Al-Rifai explains that “Germany is the European country most affected by the energy crisis, and as one of the most important industrialized countries in the world, German industry is today facing its worst crisis. for many years, due to government policies to phase out fossil fuels and replace them with green energy means to open the door to dependence on energy import from Russia, but due to the current economic embargo on Russia, Germany imports energy from abroad at a higher cost.

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