Opinion: Germany's creeping downturn

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Germany can no longer get out of crisis mode. Corona, Ukraine war, gas shortage – one crisis follows the next. This throws even the strongest economy off course, says Henrik Böhme.

An economic downturn doesn't happen over the weekend. It's creeping up, very slowly. You can see the harbingers if you look a little closer at the numbers that are being released day in and day out. Sometimes it's industrial production, sometimes incoming orders, sometimes retail sales. The latter, it was reported recently, fell by almost nine percent in June (adjusted for inflation) compared to the same month last year. The federal statisticians in Wiesbaden hastened to announce that this has never happened in the past 28 years. That sounds dramatic – and it is.

On the one hand for the retail trade itself, which has already suffered massively from the corona pandemic over the past two years. And on the other hand, it shows that people are keeping their money together – in view of the many uncertainties that waft through the news every day, such as the Ukraine war, inflation and, more recently, the fear of an escalation in the Taiwan question. Not only the Russian bear, who is just romping around in the Ukraine, but also the Chinese dragon is in a terribly bad mood right now. Not good, all that.

Inflation will continue to rise

And nobody knows exactly what is really in store for them, how all of this will be reflected in everyday life. Everything is getting more expensive – that has never been the case as it is now. And even if inflation in Germany is currently stagnating or even falling a little bit: This is only a snapshot and a distorted picture due to two temporary measures. On the one hand, the nine-euro ticket for local transport and, on the other hand, the so-called tank discount. Both will stop at the end of the month – and then it won't be long before inflation hits double digits.

Henrik Böhme, DW business editor

In addition, the landlords will only send out the bills for electricity and heating next year, which have already become very expensive. And the end of the price increases has not yet been reached. There are a few rough estimates of how much more people will have to pay to keep warm homes, hot water and enough electricity. Triple, quadruple? It will definitely be a lot. This makes people cautious when spending money, larger purchases are postponed, and in the supermarket – where people used to buy more expensive things during the Corona period – the focus is now on inexpensive products again.

The dangerous ones Wage-price spiral

Of course, all of this is also calling the unions into action: in the forthcoming rounds of negotiations, they are demanding at least inflation compensation – and the demands are correspondingly lavish. For the Hamburg port workers, for example, there is an offer of plus 12.5 percent on the table – the Verdi union is still not enough. At Lufthansa there has just been a deal for ground staff with wage increases of up to 19 (!) percent. However, this poses the risk of a so-called wage-price spiral – a great catalyst for the recession, because wage agreements that are too high will in turn result in price increases.

Strike in the port of Hamburg

So something very dark is brewing. In medium-sized companies – the backbone of the German economy – the mood is bad. A corresponding indicator of the state-owned KfW bank has fallen dramatically. According to the bank, expectations are as bad as “usually only before major recessions”. In view of the dramatically high energy prices, others paint the specter of a large wave of layoffs on the wall. For example, the head of the Munich Chamber of Industry and Commerce sees five million jobs at risk. A scenario that is actually conceivable. 

So, like it did at the end of the 1990s, is Germany becoming the “sick man of Europe” again? And what would it mean for Europe if Germany, the economic powerhouse, were to slam on the brakes? Probably nothing good. Therefore, Europe must show solidarity in resisting the Kremlin's energy blackmail attempts. Because if Putin succeeds in dividing Europe and decisively weakening its economies, he would have achieved one of his goals. Europe must prevent this at all costs. With European solidarity and smart decisions by the respective governments that really help people to make ends meet. Tips and appeals to save energy will not be enough.