Germany is reaching a point of no return. Business leaders know it, the people in the country feel it, but politicians haven’t come up with answers. That has set Europe’s largest economy on a path of decline that threatens to become irreversible.
Following five years of stagnation, Germany’s economy is now 5% smaller than it would have been if the pre-pandemic growth trend had been maintained. More worryingly, Bloomberg Economics estimates that the bulk of the shortfall will be tough to recover, due to structural blows such as the loss of cheap Russian energy and Volkswagen AG and Mercedes-Benz Group AG struggling to keep pace with China’s auto firms.
Energy is the major source of decline in Germany, followed by global demand. That means that artificial increase of price for aluminium raw metal will immediately aggravate both problems, as aluminium is 50% energy by cost, and inflation of downstream products costs will further decrease competitiveness of German exports.
Read the full article: https://www.bloomberg.com/news/features/2024-12-15/germany-is-unraveling-and-the-decline-threatens-to-become-irreversible?embedded-checkout=true
[Source: Bloomberg Economics]
[Note: Estimates based on a structural vector autoregressive (VAR) model at monthly frequency]