EU Commission: Germany’s economy shrinking but not ‘sick man of Europe’

The Commission once again lowered the growth prediction for Germany in its summer forecast, a decrease of 0.4%, the worst economic performance among the EU’s six largest economies, but Economy Commissioner Paolo Gentiloni insists the country has all the necessary tools to recover.

The Commission previously predicted Germany would be among the slowest-growing European economies in 2023, at a growth of 0.2%. However, it has now updated its forecast, expecting the economy to shrink by 0.4%.

“There is a clear recognition of the subdued economic situation in Germany with negative growth in our forecast,” Gentiloni told reporters as he presented the Commission’s economic summer forecast.

However, he added that Germany was “a strong economy with the tools and the potential to recover”, so the Commission would not agree to the term “sick man of Europe”.

The Economist had raised the question of whether Germany was the sick man of Europe on its cover in August, echoing a claim the paper had made about the country’s economy in 1999 when it was also struggling with low growth.

“Such reports are a spur for me to show Germany’s potential,” Finance Minister Christian Lindner, the co-leader of the pro-market FDP, recently said in a conversation with foreign reporters, admitting that the country sometimes “tends to handcuff itself”.

He argued that Germany would need to tackle issues such as bureaucracy, the state of infrastructure, and the shortage of skilled labour, while other intervening factors were outside its control, including the economic situation in China, Germany’s largest trade partner.

Meanwhile, the Commission pointed to Russia’s invasion of Ukraine as a major problem for Germany’s energy-intensive industries, which had previously benefited from cheaper natural gas imports from Russia.

“Even after [the energy price shock following Russia’s war of aggression] subsided, energy price levels remained elevated in comparison to production locations elsewhere,” the report reads about weak business confidence.

Several other research institutions have also downgraded their forecasts recently, including the Kiel Institute for the World Economy (IfW) last week as well as the German Institute for Economic Research (DIW) in June.

However, the Commission expects German growth to bounce back next year, predicting an expansion of 1.1%, which would put it past Italy and the Netherlands.

(Nick Alipour | EURACTIV.de)