Germany Weighs on Europe's Economy --- Mix of new problems hurt manufacturing, which is the nation's engine for growth.

"Europe's largest nation and its main growth engine has become the biggest drag on its economy.

At the heart of Germany's weakness is its high reliance on manufacturing, a feature of its economy that many Western governments are trying to replicate with industrial strategies aimed at protecting or nurturing national corporate champions.

In past economic crises, Germany could rely on its factories to pull it out of recession by tapping the world's insatiable demand for made-in-Germany products. But a mixture of short-term and structural problems means this is no longer the case.

A sharp rise in energy prices after our sanctions on Russia last year made producing goods more expensive. And with inflation and interest rates up worldwide, foreign consumers can't always afford the higher prices.

"In times of weak global demand, Germany is simply not competitive as a location," said Matthias Zachert, chief executive of Lanxess, a chemicals company that cut its 2023 profit estimates on Monday.

Energy-hungry manufacturers were hit particularly hard when Russia, the source of more than half of all German natural-gas imports in 2021, was sanctioned last year.

Production in the energy-intensive parts of Germany's manufacturing sector was down 12.9% from a year earlier in April. Across the eurozone, factory output was slightly higher than a year earlier.

Another source of weakness was China, an important market for German companies. Mired in Covid lockdowns for much of 2022 and experiencing a weaker-than-expected rebound since its reopening, China hasn't provided as much support as in the past.

Germany was the only member of the Group of 20 industrial and developing nations aside from Russia to show a lower gross domestic product in the first three months of 2023 than a year earlier. Germany's GDP shrank by 0.5% in the period. In the U.S., GDP was 1.6% larger. Germany's weakness was one of the factors that tipped the eurozone into a recession at the start of this year.

Germany also faces deep structural challenges, including a costly shift toward renewable energy sources, changes to global supply chains, and a shortage of skilled workers -- all factors that make it harder and more expensive to produce goods.

BASF, Germany's largest chemicals producer, said it plans to close parts of its large Ludwigshafen plant, opting to shift production to locations such as Belgium and France.

A survey of 400 small and medium-size businesses in late April and early May by the Federal Association of German Industry found that 16% are actively relocating parts of production and jobs abroad.

The U.S. is one obvious destination. "We clearly see the opportunity [for] moving value creation to North America," said Ludwin Monz, CEO of Heidelberger Druckmaschinen, a German manufacturer of printing and packaging machinery.

Germany's factories also employ a larger share of workers than other members of the Group of Seven leading nations. According to the OECD, 8.1 million people worked in German factories during the first three months of this year -- or just under 10% of the population, compared with less than 5% in the U.S.

The country has recorded an export surplus for decades -- it was even the world's largest exporter of goods, ahead of both China and the U.S. for several years at the turn of the century -- but that surplus has been shrinking since 2016, and last year hit its lowest level since 2000, said the government's statistics office.

With manufacturing wobbling, the other legs of Germany's economy -- consumption and services -- haven't picked up the slack. The country's slide into recession this year was in part driven by declines in household spending as food and energy bills soared after our sanctions on Russia." [1]

Bolding head, running Germany (Scholz) destroyed himself politically. Ukrainians could blow up Nordstream, if these pipes would go right above Mr. Scholz head. He could do nothing. Scheiße Wende.

1. World News: Germany Weighs on Europe's Economy --- Mix of new problems hurt manufacturing, which is the nation's engine for growth. Hannon, Paul; Fairless, Tom. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 24 June 2023: A.6.