Interest rates are falling, wages are rising – but production and sales are still not increasing. Germany’s economy is even shrinking, as statisticians reported on Tuesday. And now?
At a good party, good moods lead to even better moods. That happens, or it doesn’t. Why is that? Nobody knows for sure. The mood in the German economy is developing in a similar way. And it is currently as gloomy as it has been for a long time. The mood is traditionally measured using the ifo business climate index. Every month, around 9,000 companies are surveyed to find out how they are doing and what they expect for the next six months. The current result from this week is 86.6. Translated into words, that means: Nothing is going well here. It hasn’t been this bad since February. And will it get better? Probably not.
No desire to consume, no courage to invest
The companies that sell capital goods are the ones moaning the loudest. This is particularly bad. Because when these companies are in a good mood, it often spreads throughout the economy – where machines are bought, more can be produced in the future, thus generating growth. Clemens Fuest, the head of the Munich ifo Institute, says: “The German economy is getting deeper and deeper into this stagnation crisis.” Consumers, whose incomes are rising sharply, are not really helping either – because they are holding on to their money instead of spending it out of fear of hard times. The only thing that could really save them is demand for German goods abroad. In fact, despite all the tensions and crises, the global economy is not doing too badly. The global economy will grow by around three percent this year. Unfortunately, almost none of this is reaching Germany. For example, the Germans build great cars with petrol and diesel engines, but are not necessarily world market leaders in electromobility – which is becoming increasingly important. The bottom line is: There is no crash, but nothing is moving forward either.
And what is next for the German economy?
The figures for the second quarter of 2024, which the Federal Statistical Office announced this Tuesday, show this. The economy then shrank slightly by 0.1 percent compared to the same months last year. Now you could say: So what, we weren’t doing too badly last year either. That’s true, but the question is whether it will stay that way in the long run if we shrink or at least don’t grow while almost everyone else is growing. In its economic forecast last month, the International Monetary Fund again saw Germany as the last in the list of all major industrial nations. This is also due to the fact that high energy prices hit us particularly hard. And to the fact that Germany, as an export-oriented country, always suffers when there is a stagnation in world trade because tariffs are imposed or supply chains do not function as usual. But it also has to do with Germany itself. More confidence is not everything. But it would help if the mood improved enough that companies were encouraged to invest and consumers bought.
Source: Stern
