German economy set to shrink as part of eurozone slowdown
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In the face of strong inflation, the European Commission predicts a 0.4% decline for Germany.
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European Commissioner for Economy Paolo Gentiloni during a media briefing at the European Council building in Brussels on December 6, 2021. (AP)
According to the European Commission, Germany's economy will contract this year as part of a larger eurozone recession caused by greater prices and the depressing effect of rising interest rates.
In mid-August, Reuters reported that the German Economy Ministry revealed that a sustained recovery of the economy was unlikely to happen. German MP Uwe Schulz, a member of the AfD party, had warned that Germany was on a steady path of economic downfall and de-industrialization as a result of Europe's anti-Russia policies and sanctions.
According to Shulz, Europe's anti-Russian sanctions, unprecedented in history in terms of volume and period span in which they were adopted, did not subdue Moscow. Rather, they shoved the German industrial complex downhill, leaving one of the EU's most powerful countries vulnerable to rising energy prices and sticky inflation rates.
Read more: Making sense of a self-induced recession in Europe
The Commission's initial quarterly analysis indicates that Europe's powerful economy would be the worst-affected large country in the 20-nation single currency bloc, contracting by 0.4% in 2023.
The commission predicted Germany would grow by 0.2% this year three months ago, but now it says the world's fourth largest economy has been hit much harder than expected by decreased consumer spending.
Growth lowered for 2023
The European Central Bank's continuous tightening of policy, which has resulted in its benchmark interest rate climbing from -0.5% to 3.75% in nine consecutive increases, is more likely to be halted as a result of the pessimistic economic projections.
Growth in the EU's 27 member states has been lowered from 1% to 0.8% for 2023, while inflationary pressures in Europe have eased significantly.
The commission detailed that the latest data confirms that economic activity in the EU was subdued in the first half of 2023 on the back of the formidable shocks that the EU has endured.
According to the commission, the substantial slowdown in the issuance of bank credit indicated that increased interest rates were making their way through the economy. Despite a successful tourism season in many areas of Europe, survey signs indicated decreasing economic growth in the summer and coming months, with ongoing weakness in industry and declining impetus in services.
The EU commissioner for economy, Paolo Gentiloni, expressed that the EU "avoided a recession last winter," which he claims is "no mean feat given the magnitude of the shocks that we have faced. "
Gentiloni also stated that the situation in Ukraine was still causing economic disruption, and that "prudent, investment-friendly" tax and expenditure policies should be implemented in tandem with central banks' attempts to control inflation.
Eurozone piles economic hazards; Money supply drops, first since 2010
In August, Europe slipped into an economic red zone as data revealed that the money supply shrunk for the first time since 2010 due to falling private-sector lending and declining deposits.
The European Central Bank follows money supply as one of the main metrics to monitor market reaction to financial policy tightening.
The Eurozone officially announced in June that it had entered a recession after two consecutive quarters of GDP decline.
The main driver behind the EU's first money supply drop since 2010 was a decline in lending growth of the private sector to 1.6 percent in July. Lending to governments also fell by 2.7 percent, the biggest downtrend in 16 years since 2007.
