The German government says Europe’s largest economy is in “troubled waters.”
FRANKFURT, Germany — The German government said Europe's largest economy was in “troubled waters” and slashed its growth forecast for this year as it struggles with a lack of skilled labor, excessive bureaucracy, high interest rates and lagging investment in new projects — while a relatively modest set of tax breaks for business remains blocked in the legislature.
The growth forecast was lowered to 0.2% from the previous forecast from last fall of 1.3%. That would follow a shrinking of the economy by 0.3% for all of last year.
Germany is recovering “more slowly than we hoped” from the shock of Russia cutting off most supplies of natural gas after its invasion of Ukraine, Vice Chancellor Robert Habeck said as he presented the government's annual economic report. “The economy is in troubled waters.”
The loss of Russian gas in Germany led to a spike in energy costs that hammered energy intensive industries and contributed to high consumer inflation that eroded purchasing power and made consumers more reluctant to spend. Those two headwinds have eased as inflation and oil and gas prices have fallen, and as wages have started to rise to make up for inflation and restore lost disposable real income.
And unemployment remains low, meaning last year's downturn does not resemble a classic recession.
“The good news is, Putin failed in his attempt to drive Germany into an energy shortage and thus into an economic catastrophe,” Habeck said. As wages rise faster than inflation, workers “finally have more money in their wallets in real terms.”
Slowing global trade is another factor behind Germany's troubles, since exports of autos and industrial machinery
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