Germany officially plunged into recession during the first three months of the year. The Europe’s largest economy contracted by 0.3% in the first quarter of 2023 after it suffered a decline of 0.5% in the fourth quarter of 2022. A recession is defined as two consecutive quarters of contraction, therefore, the German economy has entered a recession.
The country’s statistics agency has blamed a 1.2% fall in household consumption for the contraction, as consumer spending power eroded by skyrocketing food prices. In March alone, German households were paying 21.2% more for their food purchases than a year earlier. In short, persistent inflation brought the consumer spending to its knees, dragging the entire economy.
The inflation rate of Germany stood at 7.2% in April, above the eurozone’s 7.0%. The recession is a slap in the face of the German government. Back in January, Chancellor Olaf Scholz said he was convinced his country would not fall into a recession despite soaring energy and food prices. Heck, even after the country slipped into recession, defiant Olaf said Germany’s economic outlook was “very good”.
You don’t need a rocket scientist to predict Germany’s inflation and subsequent recession. The Europe powerhouse depended on cheap energy to power its economic engine. All hell broke loose when Russian president Vladimir Putin invaded Ukraine due to provocation from the U.S. and NATO – expansion into Eastern Europe that could see Ukraine joining NATO.
The conflict has caused not only disruptions to the world’s economy and food supply chain, but more importantly energy crisis. The Germans high dependency on Russia for energy supply was further crippled after the U.S. blew up the Nord Stream pipelines that had been supplying Russian energy to Germany. Even then, puppet Olaf did not dare condemn the U.S. for the sabotage.
The persistence of high price increases continued to be a burden on the German economy since the Ukraine War started in Feb 2022. A drop in purchasing power, aggressive monetary policy tightening and the slowdown of American economy all contributed to Germany’s weak economic activity. Even the warm winter weather and reopening of China economy failed to prevent it from slipping into recession.
The clueless Scholz argues that it could install roughly 625 million solar panels and 19,000 wind turbines by 2030. Yet, it prematurely shut down its last nuclear reactors and aggressively phasing out coal even after the country has lost access to cheap oil and gas from Russia. Germany simply does not have the resources to generate the amount of clean energy it desires.
Now, the country says it is looking to build a huge infrastructure to import hydrogen from countries like Australia, Canada and Saudi Arabia – betting on technology that hasn’t even been tested. In truth, in the months immediately following the Ukraine invasion, economists had already warned that Germany would face a high risk of plunging into recession.
Putin has consistently and repeatedly warned Germany, and Europe for that matter, that Russia will turn off its energy supply if NATO continued to send weapons to escalate the conflict. According to the German Institute for Economic Research (DIW), the Ukraine War costs the German economy more than €100 billion (US$107 billion), or about 2.5% of its GDP.
And according to the German Chamber of Industry and Commerce (DIHK), the impact on the economy as a whole translates to a loss of wealth of around €2,000 for every individual in Germany. We have not even talked about the cost associated with the rising number of refugees over the coming months as the fighting in Ukraine intensifies. Around 17.5 million Ukrainians have left their country since the war begin.
Hilariously, even after Germany has so-called decoupled from Russian oil, the country continues to pay top dollar for energy. German industry is set to pay about 40% more for energy in 2023 than in 2021, before the energy crisis began. The best part is Europe actually still imports energy from Russia via backdoor – China and India through re-routing and repackaging of energy products.
As much as Olaf Scholz, who’s been the German chancellor since December 2021, tries to put a brave face, only half of Germans believe the ruling government coalition will hold until the end of its legislative period in the fall of 2025. The incompetent Olaf might be forced to resign if inflation remains high and sagging economy continues to take its toll on the country.
Energy intensive companies like Siemens Energy and BASF warned as early as April 2022 about severe damages if the country lost its supply of cheap energy. BASF head Martin Brudermüller has even warned of an unprecedented economic downturn that could plunge the German economy into its worst crisis since the end of the Second World War.
But the worst might not be over yet. The European Central Bank is expected to raise rates again at its next meeting on June 15 to tame inflation. Higher interest rates will continue to weigh on both consumption and investment and exports may also suffer amid economic weakness in other developed markets such as the U.S. and Japan.
Germany is the first major nation to officially enter a recession since the pandemic. However, it might not be the last. British Prime Minister Rishi Sunak has been warned the UK economy could be in recession next year. Britain narrowly avoided entering a recession in 2022. Even though the IMF no longer expects the United Kingdom to slip into a recession this year, 2023 still feel like a recession for many.
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- From Wheat To Oil & Gas – How Russia Invasion Of Ukraine Affects Europe’s Food Supply, And Even Your Loaf Of Bread
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May 29th, 2023 by financetwitter
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First is Germany to go into recession. To be followed by other EU countries like a domino effect.
Like your article stated Putin is laughing. Actually, no need to send drones or other means to take out Putin.
When the whole EU go into a recession including UK probably, Putin would die laughing.
This is self inflicted tragedies. Until now still cannot understand why so-called First World countries and supposedly, very smart people come into such dire straits.
Like Michael Dell once used the acronym, MAD. “Mutually Agreed Destruction” amongst the EU countries. Just for once, EU and US must come to their senses. Also, accept the fact there are two persons in this world you don’t want mess around with. At least for the next 10 years. One is a guy called Putin and the other is Uncle Xi. Messed around with these persons at your own peril. Better swallow your pride, make up and be on friendly term. For the sake of your citizens.