Dusseldorf The global economy is in a precarious position. Economic researchers are lowering their forecasts almost every week – the German economy is on the brink of recession and things are not looking much better in the rest of Europe and the USA. In China, industrial production is literally collapsing.
At the same time, inflation in many countries remains at levels not seen in the world for decades. These fears of inflation, in turn, have been causing turbulence on the financial markets for weeks. Meanwhile, the central bankers are attempting an impossible balancing act between fighting inflation and saving the economy.
The world economy is experiencing something like the “perfect storm” – at least that’s how the US economist Kenneth Rogoff put it this week in the Handelsblatt. And the next supply chain disruption is already foreseeable: In the USA, inflation is bringing dockworkers to the barricades, and there are threats of violent strikes that could block ports in Los Angeles, Seattle, New York or Savannah. The consequences would be drastic upheavals in maritime traffic, further rising prices – and empty shelves in the European Christmas business.
80 percent of industrial companies in Germany are already complaining about problems in procuring primary products. In the previous three decades, the peak was 20 percent.
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“So, at least as far as the supply chains are concerned, we are in a crisis that surpasses everything that has been known so far,” says Clemens Fuest, President of the Munich Ifo Institute.
Central bankers at an impasse
If you talk to the CFOs of German corporations these days, nobody really believes that we are confronted with temporary phenomena. Many have long been planning with persistent supply bottlenecks, low growth rates and high inflation, a stagflation. He was not sure, Rogoff said, “whether the politicians and decision-makers are up to the task that they may soon be confronted with”.
On the one hand, there are the central banks, which reacted too late and too hesitantly to the long-foreseeable inflation. The ECB is in a particular dilemma because it has to raise interest rates, which can cause problems for some heavily indebted Southern Europeans and would slow down the German economy in an already difficult phase.
In addition, the euro is losing value against currencies such as the dollar, which initially boosts exports because foreign customers can buy cheaper in Europe. At the same time, however, the prices of imported goods are rising. The result: rising inflation. The central bankers, it has to be said, have maneuvered themselves into an impasse.
Politicians, in turn, have gotten used to solving their problems with seemingly inexhaustible aid packages, as if there were a “free lunch”. This is also a consequence of years of zero interest rates, in which money cost practically nothing. Demand was fueled by constant billions of dollars in state aid, with subsidies for the purchase of electric cars, fuel vouchers and various economic stimulus packages.
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But this economic policy is reaching its limits. The debts of many countries have risen drastically in recent years – and now the phase of rising interest rates is beginning. And politicians, too, should now be able to guess that those apologists among economists who claimed that a new era had dawned in which the debt ratio no longer played a role were wrong.
It is quite possible that the German economy will soon find itself in a difficult phase similar to that at the beginning of this century: caught between inflation, war, energy shortages, industrial decarbonization, supply bottlenecks and a shortage of skilled workers. Because not only are computer chips missing, but also the people who can do something with them. Between January and March, 1.74 million jobs were unfilled in Germany – more than ever before.
Germany therefore needs not only a security policy, but also an economic policy turning point that focuses on growth again. This includes planning acceleration and the reduction of bureaucracy as well as investments in digital and energy infrastructure. The issue of corporate taxes must also be on the agenda, as must the high non-wage labor costs. This used to be called “supply politics”.
Federal Minister of Finance Christian Lindner ventured a move in this direction a few days ago. As expected, the echo in the traffic lights was subdued. But in view of the gloomy state of the world economy, the success of this federal government will not only depend on how quickly it invests billions in armaments, but also on the question of whether it can find a sustainable answer to the looming economic crisis.
More: The first rate hike by the ECB in the summer could quickly be followed by others