Friedrich Merz, the chairman of the opposition Christian Democratic Union (CDU), has told a German news agency that the German economy is projected to be the worst-performing among the G7 nations this year.

Merz highlighted several concerning economic indicators, such as a rise in unemployment during the summer, a contraction in industrial production, and a significant 16% increase in bankruptcies in the first half of 2023. That has raised concerns about further economic decline and deindustrialization in the country.

"Germany is losing competitiveness. This is not an abrupt process that triggers an overnight economic crisis [and] instead, we are experiencing a gradual process of deindustrialization in our country. You have to take this very seriously [because] something is happening here at the moment that may no longer be reversible. The federal government must react to this now," Merz cautioned.

The CDU chairman's remarks came in response to a recent statement from the International Monetary Fund (IMF), which forecasted that Germany had the worst-performing major economy globally this year. The country's manufacturing sector is facing persistent challenges and remains under significant pressure, contributing to the IMF's prediction of poor economic performance for Germany in the current year.

As per the IMF's projections, Germany's economy will experience the sole contraction among the Group of Seven (G7) nations by the end of this year, with a predicted 0.3% decline in its gross domestic product (GDP). The IMF had previously estimated that Germany's GDP growth would remain close to zero in 2023 but anticipates a gradual recovery in the following years, reaching between 1% and 2% growth from 2024 to 2026.
 
Clemens Fuest, the president of the Ifo economic research institute in Munich, agrees that the German economy is struggling to recover from the recession. The latest Ifo report shows a decline in the German Business Climate Index, which serves as a significant economic indicator for the country.

Paolo Raffone, a strategic analyst and director of the CIPI Foundation in Brussels, emphasizes the importance of Russia's long-term, reliable, low-cost, and abundant energy supplies to Germany's industrial sector development and strength.

According to Paolo Raffone, the destruction of the North Stream pipelines in September 2022 held significant symbolism as it effectively severed Germany's energy ties with Russia and Eurasia. This event has had profound and far-reaching consequences for the German economy.

Raffone cautioned that the absence of convenient Russian energy supplies has led Germany to face another period of industrial challenges, which in turn have significant implications for the overall economy and people's lives.

On the other hand, Gunnar Beck, a member of the European Parliament representing the Alternative for Germany (AfD) party, said as quoted by Sputnik that while the collapse of Nord Stream and Germany's decision to participate in the West's energy sanctions against Russia are factors contributing to the country's declining economic situation, they are not the sole reasons behind it.

"The German government is pursuing very foolish policies in other regards as well. First of all, there is the so-called green transformation or green agenda. Germany is trying to replace not only Russian energy but all fossil fuels, and it's phased out nuclear energy," Beck said.

The big picture

With inflation hitting 6.4% in June 2023 and a series of interest hikes initiated by the European Central Bank (ECB), household consumption continues to suffer the plight of an economic downturn.

Prior to the beginning of the NATO-orchestrated war in Ukraine, Russian oil had enabled the German economy to boom, fostering job creation, and growth in various sectors, and contributing to trade surpluses that further stimulated the business cycles.

When sanctions on Russia were enforced and Nord Stream was blown up, Germany's manufacturing PMI, which measures the performance of the manufacturing sector, fell to its lowest levels recorded since 2020, with an index of 40.6 in June 2023 dropping from 44.5 in April. Moreover, weak demand from China and the US has shrunk exports, further fueling the contraction of Germany's economy. 

LBBW bank analyst Jens-Oliver Niklasch said that the survey's results suggest "we're in a recession and won't be getting out of it very quickly".