Falling exports, high inflation… Why the German economy is failing

Economic growth will not be there in Germany this year. We expected it and the official forecasts which have just been released are severe.

It’s official: for this year, Berlin only anticipates growth of 0.2% in its GDP (its national wealth) compared to 1.3% initially forecast. 1% less growth: it’s a cold shower… which is not surprising for a country that fell into recession at the end of 2023. Three main factors explain this sharp decline in Europe’s leading economy: exports at half mast, complicated climate transition and consumption hampered by higher inflation than in certain neighboring countries, including France.

Loss of momentum of the “Mittelstand”

The international situation has called into question the economic model that has made Germany successful since the 1950s. An entrepreneurial fabric, called “Mittelstand”, made up of family SMEs focused on exports. However, the global economy has stalled, and the country’s energy policy choices initiated by former Chancellor Angela Merkel, with the abandonment of nuclear power, have increased the prices of energy consumed by companies which have lost in profitability, competitiveness and dynamism.

In addition to these problems, Germany, like many other Western countries, is faced with an aging population. The government recognizes that due to its structural weaknesses linked in particular to the lack of labor, Germany should go through a tunnel of low growth, around 0.5% per year until 2028. Which poses a problem to the fragile ruling coalition led by Chancellor Olaf Scholz. More and more debates are fueling the fragile ruling alliance in Berlin between the Social Democratic Party, the Liberal Party and the Greens.

Consequences for neighboring countries

The economic engine of Europe which is coughing, it is the entire euro zone which risks catching a cold. Our Minister of the Economy, Bruno Le Maire, also cited this German slowdown to explain the necessary budgetary savings planned this year on this side of the Rhine. But, something bad is good. This German gap can only push Berlin to play European and strengthen its development potential with countries like France and Italy. Connections ultimately beneficial to all. Germany’s trading partners have every interest in playing this card.