Western analysts expect that further economic recession in leading EU countries, in particular, in Germany, could lead to a real catastrophe.
Points of attention
- Leading analysts predict a catastrophic economic crisis in Germany, which could have severe implications for the entire EU.
- The decline in national competitiveness may result in each German household becoming poorer by approximately 2.5 thousand euros annually.
- Germany needs to increase investment in infrastructure and public goods to improve competitiveness and mitigate the economic crisis.
- The German automotive industry is projected to lose up to 40% of its value added in the next 10 years, signaling significant challenges ahead.
- Despite these looming threats, Germany has the lowest debt level among the G7 countries and a modest economic recovery is anticipated.
How Germany could drag all of Europe into a catastrophic economic decline
The publication's analysts point out that over the past 5 years, the German economy, amid a protracted recession, has shrunk by 5% compared to the period before the COVID-19 pandemic.
At the same time, they note that it will be very difficult to restore lost economic potential, in particular, due to the energy crisis and the reduction in production volumes in the automotive industry.
Analysts emphasize that the decline in national competitiveness will lead to each German household becoming poorer by approximately 2.5 thousand euros each year.
"Germany is not going to collapse all at once. That's what makes this scenario so terrifying. It's a very slow, very drawn-out decline. Not of a company, not of a city, but of an entire country, and Europe will follow suit," explains Amy Webb, founder and executive director of the Future Today Institute.
The publication's analysts cite a scenario in which Germany will rapidly lose energy-intensive production, and the volume of exports will fall due to companies reducing domestic investments.
German voters will look for those responsible for the decline in living standards, and social tensions will repel the flow of foreign specialists that the country so needs.
A poisonous cocktail of caution and discontent will then sweep across Europe.
"Every person's life gradually gets worse and worse towards the end of their life," notes Amy Webb.
Analysts emphasize that the wrong decisions made over the years by representatives of various political forces in Germany and other EU countries have destroyed the usual economic model at a time when European countries need a powerful industry to compete with China and defend themselves from Russian aggression.
The competitive position of German industry has deteriorated. Growing external markets are not providing the impetus for growth as they did in the past, emphasizes Bundesbank President Joachim Nagel.
Meanwhile, the list of pressing problems is growing. Germany's economic growth potential has shrunk to 0.4%.
To restore competitiveness, Germany must increase spending.
In particular, in order to catch up with other developed countries, Germany needs to increase annual investment in infrastructure and other public goods by about a third — to 160 billion euros.
This is an increase equivalent to more than 1% of GDP.
How bad things look for Germany
However, analysts emphasize that the situation does not yet look catastrophic.
Germany, among other things, has the lowest debt level among other G7 countries.
In addition, economists predict a moderate economic recovery in the near term.
Germany's problems are not going unnoticed. According to economists Bantleon, the country's once-famous automotive industry will lose market share and accelerate the relocation of production abroad. The sector is expected to lose up to 40% of its value added in the next 10 years.
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