German Slowdown Signals Global Woes

"FRANKFURT -- Germany's economy hit the brakes at the end of last year as the export powerhouse was slammed by global supply-chain bottlenecks, surging material prices and weakness in its biggest trading partner, China.

With its outsize dependence on world trade and the critical role it plays in global supply chains, the German economy has emerged as a barometer for a number of global issues, including rising energy prices, the slowdown in China and supply-chain disruptions. More than that, German industry, especially its huge car sector, is grappling with both technological upheaval and fiercer competition from Chinese rivals.

The softness in Germany, which represents nearly one-third of the eurozone's output, is weighing on the continent's recovery from the Covid-19 pandemic. It contrasts with muscular growth in the U.S. at the end of last year, according to estimates by the Federal Reserve Bank of Atlanta.

Germany's economy probably shrank by between 0.5% and 1% quarter-on-quarter in the September to December quarter, the federal statistics agency said at a news conference Friday.

Germany is the first major economy to give a preliminary estimate of its 2021 gross domestic product.

For 2021 as a whole, German GDP grew by about 2.7% year-over-year, leaving it 2% below its 2019 level. That compares with estimated growth of 5% for the wider eurozone and 5.8% for the U.S. last year, the agency said.

Georg Thiel, president of the German federal statistics agency, blamed the lackluster recovery on social restrictions aimed at containing the virus, which held back consumer spending, as well as delivery bottlenecks and material shortages.

Even the U.K., hurt by tougher trade relations after Brexit, recently has recorded solid growth. Its economy grew 0.9% month-on-month in November, propelling economic output above its pre-pandemic level, the U.K.'s national statistics office said Friday. Germany's economy was still 1% below its pre-pandemic level at the end of last year, while the U.S. surpassed that level in the middle of last year, according to Capital Economics.

Germany is suffering from its reliance on exports, which support roughly 30% of German jobs, about four times the share in the U.S. German manufacturers are struggling to find parts and labor to produce cars and machinery. They face surging energy prices that are further pushing up sky-high electricity bills.

They are also being squeezed by a slowdown in China, Germany's largest trading partner in 2020 and a major purchaser of German machine tools and cars. German exports to China declined by 4.2% in November year-over-year, to 8.9 billion euros, equivalent to $10.2 billion, while exports to the U.S. surged about 15% to 11 billion euros, according to the federal-statistics agency.

Meanwhile, Germany's large auto manufacturers are spending heavily on new technologies that they hope will enable them to switch to cleaner battery-powered vehicles.

German authorities have tightened social restrictions in recent months amid a massive new wave of Covid-19 infections. That is weighing on retail sales, which declined about 3% in November after adjusting for inflation, the statistics agency said.

One in seven German companies fear for their existence, according to a recent survey by the Ifo think tank.

Meanwhile, German inflation surged to 5.3% in December, its highest level in almost three decades and significantly above the European Central Bank's target of 2%.

As economic activity has slowed, German businesses are furloughing more workers."[1]

1.  World News: German Slowdown Signals Global Woes
Fairless, Tom. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 15 Jan 2022: A.8.