Religion & Liberty Online

As Germany slows, Europe should worry

In 2019, the mighty German economy, the economic powerhouse of the European Union, grew a mere 0.6 percent. That’s right. It grew just over half a percent. In 2018, Germany grew 1.5 percent. This is not a lot, but it was better than 2019.

The German economy is Europe’s largest. Hence, when it goes wrong, things go wrong elsewhere in the EU. As reported in the Wall Street Journal:

Germany’s weakness is bad news for Europe, and not just because of its size, accounting for about a fifth of the EU’s total gross domestic product. German manufacturers are also tightly integrated in the continent, particularly Central and Eastern Europe, where German-owned plants and suppliers to German companies account for a large share of jobs.

The slump in Germany’s auto industry, for instance, has already affected neighboring countries that produce parts or finished vehicles for its leading brands, such as the Czech Republic and Slovakia. Figures released Wednesday by the European Union’s statistics agency showed that while German industrial output in November was 4% down on a year earlier, Czech output was down 3.1%, and Slovak output down 4.4%. By contrast, France, whose car industry operates independently of Germany’s, output rose 1.2%.

Germany is also the largest export market for Italy, the bloc’s weakest large member. In the first 10 months of last year, Italy’s exports to the country grew by just 0.2% compared to the same period a year earlier versus Italy’s 2.7% increase in total foreign sales of goods. Italy’s exports to France, its second largest foreign market, were up 2.2%.

The other problem is that growth forecasts for Germany are pessimistic.  Indeed, the same article notes that Germany could be looking at a decade of economic underperformance. This is not good news for Europe, especially given that it will have to shoulder much more of the costs of the EU now that Brexit is full steam ahead.

Could Germany become, as it was in the late 1990s, the “Sick Man” of Europe? Stay tuned.

Samuel Gregg

Samuel Gregg is the Friedrich Hayek Chair in Economics and Economic History at the American Institute for Economic Research, an affiliate scholar at the Acton Institute, and author, most recently, of The Next American Economy: Nation, State, and Markets in an Uncertain World.