Germany; The United States of America (USA) is the fourth largest economy in the world after China and Japan.[i] Despite this, the German Federal Government has confirmed that the economy has been in recession for three consecutive quarters.[ii] This presents a problematic projection for the German economy.
A recent report by London-based financial advisory firm Capital Economics stated, “We suspect that household and government consumption in Germany will continue to be very weak, and we think investment will contract.”[iii]
According to financial website Trading Economics, the data has not shown growth since the end of the third quarter of 2022.[iv] It can be said that this is not a huge drop. However, it can still be argued that it brings with it pessimistic scenarios.
Given that Germany is Europe’s largest economy,[v] it can be argued that this economic downturn is similar for the European Union (EU). While other countries in Europe have also been hit economically, economically weaker countries like Greece have suffered disproportionately.
Moreover, a 0.5% drop in Germany’s Gross Domestic Product (GDP) is estimated to have a much larger negative impact on other fragile European economies.
According to Capital Economics, Germany’s economic turmoil and recession will probably last for another six months or so. Capital’s latest report said,“We are comfortable with our below-consensus forecast that the economy will contract further in both the third and fourth quarters.”[vi] In other words, Capital predicts that the recession in Germany will last at least five quarters.
It can be argued that the current economic situation is not as bad as it was during the Covid-19 pandemic and the associated government lockdowns. Indeed, when the effects of the Covid-19 pandemic were clearly felt, the German economy was in a complete collapse. It is stated that the situation is better now compared to that period.
In this context, it can be said that Berlin’s economic stagnation is closely related to the Russia-Ukraine War. Due to the Russo-Ukrainian War, many sanctions have been imposed on Russia by Western countries, especially the United States. “Therefore, the Russian economy was negatively affected, the ruble suffered a significant fall against the dollar”[vii] and more than a thousand companies withdrew from the Russian market.[viii] However, Europe’s energy dependence on Moscow should also be taken into account.
Europe’s dependence on Russian natural gas and its multi-state system also create vulnerabilities and raise doubts about the indefinite applicability of sanctions. As is well known, European countries import around 40% of their natural gas from Russia, and Gazprom’s supply cuts have a negative impact on the economies of European states. In July 2022, European heads of state decided to reduce natural gas consumption by 15%.[ix] In the long term, European states can build new gas terminals and sign new gas agreements with new suppliers. But this will take quite a long time. In the short term, economic stagnation seems inevitable. As a result, as long as the Russian-Ukrainian War continues and the Western Bloc’s sanctions against Moscow persist, the stagnation of the German economy in particular and the European economy in general can be predicted to continue.
[i] “The World’s Largest Economies”, World Data Info, https://www.worlddata.info/largest-economies.php, (Erişim Tarihi: 28.08.2023).
[ii] “Germany’s Epic Recession Continues: Economy Still Can’t Catch A Break”, Forbes, https://www.forbes.com/sites/simonconstable/2023/08/28/germanys-epic-recession-continues-economy-still-cant-catch-a-break/?sh=4269af782bd2, (Erişim Tarihi: 28.08.2023).
[iii] “Germany GDP Growth Rate” Trading Economics, https://tradingeconomics.com/germany/gdp-growth, (Erişim Tarihi: 28.08.2023).
[iv] “Germany’s Epic Recession Continues: Economy Still Can’t Catch A Break”, Forbes, https://www.forbes.com/sites/simonconstable/2023/08/28/germanys-epic-recession-continues-economy-still-cant-catch-a-break/?sh=4269af782bd2, (Erişim Tarihi: 28.08.2023).
[v] “The World’s Largest Economies”, World Data Info, https://www.worlddata.info/largest-economies.php, (Erişim Tarihi: 28.08.2023).
[vi] “Germany’s Epic Recession Continues: Economy Still Can’t Catch A Break”, Forbes, https://www.forbes.com/sites/simonconstable/2023/08/28/germanys-epic-recession-continues-economy-still-cant-catch-a-break/?sh=4269af782bd2, (Erişim Tarihi: 28.08.2023).
[vii] “Russian Ruble Plunges Nearly 30% Against the Dollar Amid Sanctions over Ukraine Invasion”, CNBC, https://www.cnbc.com/2022/02/28/russian-ruble-dives-nearly-30percent-against-the-dollar-amid-sanctions-ukraine-crisis.html, (Erişim Tarihi: 23.08.2023).
[viii] “Over 1,000 Foreign Companies Left Russia since Feb. 24: Report”, Alarabiya News, https://english.alarabiya.net/business/2022/05/31/Over-1-000-foreign-companies-left-Russia-since-Feb-24-Report, (Erişim Tarihi: 23.08.2023).
[ix] ”EU Asks Member States To Cut Natural Gas Demand 15% By Next Spring”, Anadolu Agency, https://www.aa.com.tr/en/europe/eu-asks-member-states-to-cut-natural-gas-demand-15-by-next-spring/2641445, (Erişim Tarihi: 23.08.2023).
