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German economy unlikely to improve in the short-term: Experts

By Al Mayadeen English
Source: Agencies
25 Jun 2023 11:57

The transition towards a green energy economy would involve tremendous costs and will reap no benefits on the short-term.

An elderly woman leaves a food distribution center with her bags, packed with groceries, at the Catholic St. William Church in Berlin, Germany, Wednesday, May 31, 2023 (AP Photo/Markus Schreiber)

After Germany announced that its economy had entered recession earlier this year, the German economy is facing the plight of an unbearable economic downturn.

Several experts interviewed by AFP say that the prospects for improvement are grim as de-industrialization is picking up speed amid an energy and cost-of-living crisis.

"We currently see the country faced by a growing mountain of challenges," said Siegfried Russwurm, head of the influential BDI industry lobby.

"A growing number of businesses, including small and midsize companies, are working on "moving part of their activities out of Germany", Russwurm said at the BDI's annual conference.

Some newspapers have even made references to Germany as being the "sick man of Europe," a label often given to a nation experiencing economic downturn or impoverishment.

But German Chancellor Olaf Scholz has a different perspective of reality. During an interview in March, he said that progress made towards achieving climate neutrality by 2045 will eventually benefit the German economy in ways never known to man before.

Efforts towards achieving green energy goals would bring back "levels of growth like in the 1950s and 1960s", the age of West Germany's postwar "economic miracle," Scholz said.

But several experts have expressed skepticism over the matter.

First of all, the cost of "replacing the existing stock" of fossil-fuel technologies with renewable ones would be tremendous, Russwurm said, noting that this "will not lead to extra economic growth in the short term."

"We will only reap the reward of this investment in the distant future, when we have effectively managed to reduce greenhouse gas emissions," Timo Wollmershaeuser of the economic think-tank the Ifo Institute told German media this week.

"Growth could be significantly weaker over this decade than in the 2010s, years of supposed prosperity," said Marcel Fratzscher, head of the DIW think-tank.

On another note, the economy has been coping with structural issues which have been impacting its overall.

These, among many factors, include slow bureaucracy, low levels of digitalization, and an aging population that could lead to labor shortages are contributing to the crisis.

"If the population sinks, GDP will not grow either," Wollmershaeuser said.

In 2022, Germany made the decision to gradually decouple from Russia, the bloc's main supplier of cheap oil that helped propel Germany and the entire EU economies to unprecedented growth following the collapse of the Soviet Union.

"Energy costs, labour shortages, bureaucracy -- for us, producing in Germany is no longer attractive," Ingeborg Neumann, head of the German textile industry association, said at the BDI event.