Is Germany’s Economic Model Truly Kaputt?
global financial crisis. German gross domestic product has clocked three quarters of negative or zero growth , making the country the worst performer among major eurozone nations since 2019. Previously it was the top performer.
How long this “slowcession" lasts is a crucial question for picking stocks in Europe. Despite the recent economic reversal, the DAX has been by far the best equity index in the eurozone over 20 years, returning almost 360%. By comparison, investing in long-stagnant Italy yielded a paltry 140% return.
German industrial output has been in decline since 2018, when global vehicle sales fell for the first time in almost a decade. A postpandemic rebalancing of spending toward services has made the situation worse. Growth in China, the fourth-largest market for German exporters, has slowed.
On Thursday, shares in Siemens —the largest industrial firm in Europe—fell 5% after it cited these two factors as the cause of a fall in orders during the second quarter. Some of the grit that has gotten into the German economic machine might be hard to dislodge . Chinese carmakers have turned from partners into fierce competitors as Volkswagen , BMW and Mercedes-Benz play catch-up in electric-vehicle technology.
It isn’t just China that is seeking to substitute imports for domestic products; the Biden administration is copying Beijing’s playbook. There is also energy. At the same time as German industry has lost Russia as its main source of cheap gas, Berlin has closed the country’s last three nuclear power plants.
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