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German Economy Shrinks for the Second Quarter in a Row Amidst a Slew of Challenges

Victor Westerkamp
Victor resides in the Netherlands and writes about freedom and governmental and social changes to the democratic form of nations.
Published: August 28, 2023
A steelworker is seen at the blast furnace (Hochofen) Schwelgern at the steelworks of ThyssenKrupp Steel Europe AG in Duisburg, western Germany, on July 26, 2023. The German economy is faltering, with industry, construction, and energy production declining 1.5 percent in June. The International Monetary Fund (IMF) recently predicted that Germany will be the only one of 20 countries in the study to undergo a decline in economic output this year. (Image: INA FASSBENDER/AFP via Getty Images)

The German economy has shrunk this year for the second consecutive quarter due to self-imposed coronavirus measures, energy shortages, and depleting energy resources.

The Federal Republic of Germany (BRD) has been considered the stronghold of the European market for decades since WWII. This rebuilding, commonly known as the Marshall Plan, led to Germany’s economic miracle, or “Wirtschaftswunder.” 

The miracle was achieved on the surf of billions of Wall Street dollars to rebuild a devastated Europe after World War II.

One of the reasons for the current financial decline is undoubtedly central banks’ monetary policy. The Federal Reserve, the European Central Bank, and other institutions have been trying to reduce inflation by sharply raising interest rates. But because of this, credit has become more expensive for businesses and consumers, further slowing Germany’s construction industry and dampening enterprises’ willingness to invest. 


This “stalling” of financial dynamism is why central banks are increasing their interest rates. Yet other Eurozone countries, such as France or Spain, have done this with more success. 

“All of our European neighbors have higher economic momentum,” said Moritz Schularick, President of the Kiel Institute for the World Economy (IfW), according to Deutsche Welle.

Heavy-handed measures imposed to fight the novel coronavirus in 2020, and then the decoupling from Germany’s primary energy supplier, Russia, in the wake of the latter’s invasion of Ukraine, have only added to the economic malaise that is squeezing businesses and citizens at all levels. 

‘Bizarre backwardness’

“Large parts of our economy are lacking confidence that investments in Germany as a business location, in light of the high costs and some parts contradictory regulations, will pay off,” said Peter Adrian, president of the Association of German Chambers of Commerce, according to the federal news agency DPA.

Previously, Germany’s thrift was based on importing cheap energy, cheap raw materials, and cheap semi-finished products from Russia, processing them, and then exporting them as high-value, expensive goods. But not anymore. 

High energy costs are a problem for energy-intensive businesses, and those moving their production elsewhere aren’t returning. 

Schularick argued on the Kiel Institute’s website that if Germany does not want to fall back into poverty, “it must now courageously turn its attention to the growth sectors of tomorrow instead of fearfully spending billions to preserve yesterday’s energy-intensive industries.” 

It’s not just the Germans that are performing below expectations financially; the Dutch economy in the neighboring Netherlands equally performed poorly. Thanks to a yearslong policy of ransacking their own industry, they experienced a cringe during the second consecutive quarter, the Dutch statistics CBS announced.

Meanwhile, the Dutch government is squeezing its state-of-the-art agricultural companies out of business out of a controversial program to reduce nitrogen usage.  The unpopular moves have spurred an exodus of know-how on agricultural management to countries like Ukraine.

Schularick, the IfW president, did not elaborate on the causes for Germany’s economic troubles beyond what he said was insufficient immigration to the BRD to offset its poor native demographics. ” Meanwhile, he criticized the “sometimes bizarre backwardness in all things digital,” as well as “the sharp decline in state capacity and public infrastructure.”