Europe’s Growth Engine Is Broken

livemint.com:

Germany is stuck in a rut, and there is no quick way out. The European powerhouse’s economy, the largest on the continent and the world’s fourth biggest, shrank last year, extending a six-year slump that is raising fears of deindustrialization and sapping support for governments across the region. Output in the country likely shrank by 0.3% in the three months through December from the previous quarter, the German federal statistics agency said Monday.

For 2023 as a whole, it contracted by 0.3%, leaving it only 0.7% larger than in 2019, before the Covid-19 pandemic, the agency said. Other large eurozone economies likely grew last year, including France, Italy and Spain, according to European Union estimates. The downturn reflects a confluence of headwinds that are upending the country’s export-focused business model, from slower growth in China to higher energy prices and interest rates, mounting tensions around global trade, and a tricky transition to green energy.

And with no sign that any of these cyclical and structural factors are about to improve, Germany’s prospects aren’t looking good. “I’ve never been so worried about the medium-term outlook for Germany," said Dirk Schumacher, an economist with Natixis in Frankfurt who has been tracking the German economy for decades. The country’s gross domestic product is only 1% larger than it was at the end of 2017 after adjusting for inflation.

By contrast, the U.S. economy has grown by an inflation-adjusted 13% over the same period, according to data from Eurostat and the Bureau of Economic Analysis. This year, Germany faces new economic threats, from a collapsing real-estate market to conflict in the Middle East that is disrupting the Asia-Europe trade route.