Germany has become a rare punching back for the rest of Europe, as crippling production levels, falling exports, and waning consumer confidence put the brakes on the continent’s largest economy.
Now, one of the country’s biggest policymakers is fed up with its sickly image.
The boss of the country’s Central Bank has been forced to go on the defensive as analysts fret over the state of a country that is likely to struggle through recession for the rest of the year, and he has taken issue with a particularly unflattering title.
“There’s always talk about Germany being a ‘sick man,’” Bundesbank President Joachim Nagel told an audience Wednesday, per Bloomberg.
“I’m more worried that Europe is getting sick if we don’t finally start doing our homework.”
Bloomberg reported that Nagel was referring to European bureaucracy and higher taxes across the continent as he sought to deflect from struggles in his own economy.
Europe’s sick man
After shaking its “sick man of Europe” title in the wake of unification in the 1990s thanks to massive industrial growth, Germany is once again being tarred with the unfortunate moniker, and for good reason.
Germany has been paying for its past reliance on cheap Russian oil and gas, which has been virtually wiped out in the wake of tit-for-tat sanctions following Vladimir Putin’s invasion of Ukraine.
Supply chain disruptions have proven slow to untangle, while the country is also digesting the effects of falling demand from its key trading partner, China.
The country’s economy largely stagnated before declining last year, registering negative GDP growth of -0.3% in 2023.
Analysts believe Germany is now expected to enter a technical recession, defined as two consecutive quarters of negative economic growth.
Germany’s Purchasing Managers Index (PMI), which measures the country’s production and services output, has been shrinking for the better part of two years.
“Germany is not getting back on track,” surmised Hamburg Commercial Bank chief economist Dr. Cyrus de la Rubia, following the country’s latest PMI reading.
In September, Deutsche Bank CEO Christian Sewing raised the prospect of Germany once again becoming the sick man of Europe unless it fixed several structural issues, including a lack of skilled workers and outdated rail networks. He also shared Nagel’s frustrations with bureaucracy.
“We will become the sick man of Europe if we do not address these structural issues now,” Sewing said at last year’s Handelsblatt Banking Summit. “Something urgently needs to change here.”
However, Bundesbank’s Nagel has a point when he flags Europe’s own struggles.
The EU and eurozone economies grew at a measly 0.5% last year, a fifth of the U.S.’s 2.5% growth in 2023.
The continent’s latest PMI reading was slightly positive in March, but still showed there was a long way to go before significant GDP gains would be realized.
Eurozone policymakers have sounded a cautious note on pulling down interest rates before inflation is proven to be under control, which might also put the brakes on growth.
“A lot will depend on the consumer, who is gradually regaining purchasing power as real wage growth is now positive,” said Bert Colijn, a Eurozone senior economist at ING.
“With expected cautious rate cuts, the investment environment should also slowly get more attractive again. But as today’s PMI indicates, the economy remains weak for the moment.
From a longer-term perspective, weak demographic trends have combined with stunted innovation on the continent since the turn of the century, Clemens Fuest, president of Germany’s Ifo Institute, Fuest said Thursday, Bloomberg reported.
“Over the past two decades, Europe has fallen behind the US economically and technologically due to a lack of economic momentum and innovation.”
“It’s high time to stop this trend.”
