Is Germany's Recession is EU's First Falling Domino?

Germany's Recession is EU's First Falling Domino

Sputnik

Germany entered a technical recession in the first quarter of 2023, according to recent figures from the Federal Statistical Office. What's behind the new trend and what does the future have in store for the German economy?

Revised official data has indicated that Germany's economy is in worse shape than previously estimated: it has contracted twice, in two consecutive quarters, meaning that it has been dragged into a recession. As per international economic observers, the unfolding economic slowdown has largely been caused by the disruption of Germany's energy ties to Russia, which exacerbated the already swirling crisis in the country and contributed to gradual de-industrialization.

"Long term, reliable, low cost and abundant energy supplies from Russia have been pivotal to German industrial sector development and strength," Paolo Raffone, a strategic analyst and director of the CIPI Foundation in Brussels, told Sputnik. "This is particularly true since the mid-seventies. In history, the thalassic powers (transatlantic powers) have always opposed the 'easy' energy supplies from Russia to Germany. The scope has been (and still is) to contain the German powerhouse based on the development of its industry."

"The 'mysterious' explosion of the North Stream pipelines was highly symbolic (cutting German energy ties with Russia and Eurasia) and it has had tremendous consequences for the German economy. Without the convenient Russian energy supplies, Germany has entered (again) a period of industrial difficulty that impacts the general economy and the life of people," Raffone continued.

According to the Federal Statistical Office, the nation's gross domestic product (GDP) fell by 0.3% in the first quarter of 2023, with household and government spending plummeting 1.2% and 4.9%, respectively.

Is Germany Heading Towards De-Industrialization?

Germany's looming de-industrialization became the focus of economists' attention late last year. In October 2022 German chemical giant BASF revealed its plans to relocate part of its production facilities to China, citing high energy costs. The decision came after the destruction of the Nord Stream pipelines in September 2022.

At the time, at least 9% of Germany's small- and medium-sized industrial companies stated that they would be moving their production abroad, too, according to the Foundation for Family Businesses in Germany and Europe's survey. Furthermore, BASF announced in February 2023 that it would cut 2,600 jobs, or about 2.3% of its global workforce. Out of 2,600 jobs, 1,800 were scheduled to be cut at the Ludwigshafen headquarters in Germany.

There is a real danger of deindustrialization in Germany and this process will last for several years, according to Alexander Rahr, a German political scientist.

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