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Published: February 21, 2024 1:06 PM ET
FRANKFURT, GERMANY – The German government says Europe’s largest economy is in a “difficult situation”, suffering from a lack of skilled labor, excessive bureaucracy, high interest rates and delays in investing in new projects. As a result, this year’s growth forecast has been revised downward. A relatively modest tax cut for businesses remains blocked in Congress.
The country’s growth forecast has been lowered to 0.2% from the previous forecast of 1.3% last fall. This will cause all countries’ economies to shrink by 0.3% of her…
FRANKFURT, GERMANY – The German government says Europe’s largest economy is in a “difficult situation”, suffering from a lack of skilled labor, excessive bureaucracy, high interest rates and delays in investing in new projects. As a result, this year’s growth forecast has been revised downward. A relatively modest tax cut for businesses remains blocked in Congress.
The country’s growth forecast has been lowered to 0.2% from the previous forecast of 1.3% last fall. This will result in the economy contracting by his 0.3% in all of 2023.
Deputy Prime Minister Robert Habeck released the government’s annual economic report, saying Germany was recovering “slower than we had hoped” from the shock of Russia cutting off most of its natural gas supplies after its invasion of Ukraine. Stated. “The economy is in trouble.”
The loss of Russian gas in Germany has led to soaring energy costs, hurting energy-intensive industries and causing consumer inflation, eroding purchasing power and causing consumers to cut back on spending. These two headwinds have weakened as inflation and oil and gas prices have fallen, and wages have begun to rise to offset the inflation and restore lost disposable real income.
Last year’s recession also bears no resemblance to a typical recession, as unemployment remains low.
“The good news is that President Putin has failed in his attempt to plunge Germany into an energy shortage and thus an economic catastrophe,” Habeck said. With wages rising faster than inflation, workers “finally have more money in their wallets in real terms.”
A slowdown in global trade is also contributing to Germany’s woes, as exports of cars and industrial machinery are the mainstays of the economy.
Other, often long-term issues continue to plague what was once the engine of European industrial and export growth. The European Central Bank’s high interest rates are slowing the construction of new homes and offices. Companies are complaining that they can’t find skilled workers. Excessive red tape and lengthy approvals are also slowing construction of new projects such as renewable energy generation.
Investment in digital and transport infrastructure has lagged since the government focused on balancing the budget to avoid accumulating new debt. A 2009 constitutional amendment to limit deficit spending is once again plaguing the current government after the Constitutional Court ruled that special emergency funds cannot be used to circumvent deficit limits.
The coalition government led by Social Democratic Party Chancellor Olaf Scholz had to make last-minute adjustments to this year’s spending, including ending subsidies for agricultural diesel fuel. This has led to protests by farmers blocking roads with tractors.
The relatively modest tax cuts, totaling 3.2 billion euros ($3.5 billion), passed the lower house of parliament but were blocked by the conservative opposition in the upper house. The Christian Democratic Party, led by opposition leader Friedrich Merz, made the restoration of agricultural fuel tax cuts a condition of approval.
The government will address the shortage of skilled workers by passing legislation to ease immigration for workers in essential fields, reducing the waiting time to become a citizen from eight years to five years, and in some cases to three years. trying to deal with it.
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