Germany's economy shrank for the first time in four years, raising fears Europe's economic powerhouse may be headed for recession. DW's Karl Zawadzky says the country has to face the fact the party is over.
One thing is clear -- Germany is past its peak when it comes to economic performance. The party --surging exports and strong domestic investments -- is over.
Still, there's some tangible relief at the reversal in economic fortunes because things could have been much worse. The German economy shrank by 0.5 percent in the second quarter of this year -- that's bad but it's not going to really cripple the country's economy.
It would be highly surprising if all the big economic powers could simply shrug off the negative factors that have in recent times plunged the global economy into crisis.
In the US, an absolutely superficially-financed housing bubble has burst, triggering a finance and banking crisis in America and Europe. The real estate boom is also over in Britain and Spain, two large European Union nations. The dollar has taken a battering while the rise of the Euro has thrown a dampener on European exports. Oil prices have climbed to levels unimaginable until recently and food prices have skyrocketed. Finally, inflation in the euro zone has soared out of control, prompting the European Central Bank to raise interest rates.
All this has put a brake on Germany's economic growth rate. Within a short period, both corporate and consumer sentiment has plummeted. Talk of a long-lasting economic upturn has been replaced by dire predictions of stagnation or even recession coupled with a lasting price rise.
But the facts speak against it. The weather is one of the main reasons for Germany's economic slowdown. Whether it had to with climate change or not, the fact is that the last winter practically didn't materialize. Add to it the fact that tax benefits for the construction sector were phased out.
Both those factors led to the fact that construction sites early this year weren't closed, as is usually the case, but rather that the economy grew in the first quarter by 1.5 percent -- something it hasn't done in 12 years. This surge in growth was missing in the second quarter.
That means slowing economic growth is partly due to statistical interpretation. If you assess the first two quarters of this year individually, a dramatic decline becomes apparent. If you consider the first half of the year as a whole, you have an economic growth rate of 1.2 percent. In the face of the negative factors affecting the world economy, it's quite substantial.
But one thing is clear -- if the global economy has to battle with serious problems such as high oil prices, a finance crisis and volatile currency markets, it will drag the German economy into the crisis. That's because the German economy, like no other economic power, is reliant on exports which make up almost half of Germany's economic performance. A decade ago, that share was only 27 percent.
The current economic downturn looks worse than it actually is. It won't change the fact that Germany's economy will grow in the current year. German Economics Minister Michael Glos is sticking to growth predictions of 1.7 percent.
But that's one percentage point less than last year; for the coming year, experts predict a further worsening of the economy. It's not the decline in the second quarter but rather the downward trend that's sparked concerns because it's coupled with a strong price rise that hampers the much needed lowering of interest rates by the European Central Bank.
Developments on the labor market are still positive but a lasting economic slowdown will soon change that. The ranks of unemployed will rise again.
There's a reason for the bleak outlook -- the party is over. For many, it's associated with a hangover -- just like in real life.
Karl Zawadzky is DW-RADIO's business editor (sp)