Why Germany is currently being left behind from the rest of Europe

Berlin A simple picture helps to understand the current state of the German economy: If the country were a cheerful child that was not allowed to leave the house for months during the corona crisis, now wants to get out and quickly starts walking – it would now trip over its own knotted shoelaces.

But that’s not all: The friends of the German child from other European countries can hardly stumble because they have Velcro fasteners on their shoes.

The finding: Europe is growing, only Germany is hardly growing

Germany may not be on the ground, but it cannot run as freely as the other countries. This is shown by the flash estimates for economic growth published on Friday. In the third quarter, Germany’s gross domestic product (GDP) is expected to increase by 1.8 percent, the Federal Statistical Office announced.

This means that growth is lower than in the previous quarter, for which statisticians corrected the value up to 1.9 percent. In the third quarter, the Federal Republic of Germany is 0.3 points below the average for the European Union, as can be seen from the figures from the Eurostat statistics office. Compared to the same period of the previous year, the difference is 1.4 percentage points.

Various countries are emerging from the crisis with a lot of speed. The falling corona measures are meeting high private demand. In Italy the GDP grew by 2.6 percent in the third quarter, in Austria it is 3.3 percent.

There are two reasons why the German numbers are drifting apart from the European ones. The first is a logical consequence of the crisis. While Germany weathered the pandemic quite well, many other European economies collapsed much more severely.

The other countries now have all the more catching up to do. “So Germany has less potential for recovery,” says Oliver Holtemöller, Vice President of the Halle Institute for Economic Research (IWH). Despite the sluggish upswing, Germany is only 1.1 percent away from the pre-crisis level of GDP.

Germany suffers more from global delivery bottlenecks

Spain, for example, slumped by almost eleven percent last year, Italy by nine, and in Germany it was only 4.8. Nevertheless, Germany was only in the middle of the field of economic development in Europe. The main reason for the now sluggish upswing lies in the country’s economic structure and the massive effects of global delivery bottlenecks.

“The manufacturing industry is particularly affected and has a comparatively high share in this country,” says Holtemöller. A fifth makes up the added value. The automotive industry alone, which suffers from a shortage of semiconductors like never before, has around five percent.

In countries like Italy or Spain, the industrial share is only around 13 percent of the value added. Industrial production has been suffering for months due to a lack of expensive raw materials and inputs. “That is now fully effective,” says Martin Wansleben, General Manager of the German Chamber of Commerce and Industry (DIHK). The high demand after the pandemic and restrictions in logistics are making themselves felt.

Ships are stowed in front of the major ports in the USA and China. A “cool autumn wind” was blowing over the German economy, said the acting Federal Minister of Economics Peter Altmaier (CDU) on Wednesday when he had to cut his economic forecast for the current year due to the supply chain problem.

Companies in Germany cannot carry out orders

The Ifo Institute estimates the value added losses in German industry that have so far been triggered by supply bottlenecks at almost 40 billion euros. “That is a good one percent of the total economic output in Germany in one year,” says Ifo economic director Timo Wollmershäuser.

For the fourth quarter of 2021, the Ifo Institute is now only expecting growth of 0.5 percent instead of the previous 1.3 percent. The order books of German companies are full. But they cannot process the orders. Eurostat figures show how badly Germany has been hit.

The production volume in the manufacturing sector increased in 23 of the 27 EU countries between the last quarter of 2020 and the second quarter of 2021, in some cases significantly. In the Netherlands, for example, companies increased their production by six percent, in Greece it was more than four percent.

In Germany, on the other hand, production decreased by a little more than one percent in the same period. Similar declines were seen in France, North Macedonia and Malta as an industrial location, which is also strong.

The fact that Germany’s economy is currently growing is mainly due to the good demand compared to the supply side. According to the Federal Statistical Office, growth in the third quarter of 2021 was primarily driven by higher private consumer spending.

The Germans are said to have accumulated 200 billion euros in savings during the crisis and now want to spend it again. The service industry is currently the mainstay of the economy. The corona restrictions, which have been lifted many times, are reviving business.

Germany: higher growth than the EU average in 2022

The hope is that the supply bottlenecks will for the most part recede in the coming year and that Germany will be able to catch up on the lack of growth if the good order situation meets the corresponding production possibilities.

With 4.8 percent growth, Germany is expected to be above the EU average for GDP growth in 2022. In their joint forecast, the major economic institutes estimate EU growth at 4.5 percent for 2022.

In the long run, however, it depends on the industry and thus on the further development of the supply bottlenecks, how Germany will look and thus also what financial leeway the next federal government will have in the future. Nobody is certain about this further development.

Most economic researchers are quite optimistic for the coming year – but concerns remain. “The numbers give little reason to hope for a sustainable, investment-driven upswing,” says DIHK managing director Wansleben. According to DIHK estimates, the pre-crisis level will only be reached after the third quarter of 2022.

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