Germany's Economic Rut Gets Deeper, With Contraction Forecast.

"Germany's embattled economy, once Europe's main engine of growth, looks set for a fresh contraction as its all-important manufacturing sector continues to weaken.

After stagnating since the end of last year, Germany's output is likely to contract this quarter as its factories face higher energy costs, a less-welcoming global marketplace and intense competition from China in key sectors, recent data show.

The country was hit hard by sanctions on Russia, which caused a surge in energy and food prices. Its reliance on exports to drive growth has left it vulnerable to a global slowdown in demand for goods as cash-strapped households give priority to spending on the services they were denied access to during the years of Covid-19 restrictions.

Germany's economy has grown in only one of the past five quarters, and was 0.3% smaller in the three months through June than it was in the first quarter of 2022, when sanctions on Russia were introduced. The other large eurozone economies have fared much better, with France recording growth of 1.4%, Italy growth of 1.7% and Spain growth of 4.6% over the same period. In the U.S., economic output was up 2.4%.

Figures Germany's statistics agency released on Thursday showed industrial production fell by 0.8% in July from June, and was 4% down from February 2022, the month of those sanctions on Russia.

The German economy should contract by 0.3% in the current quarter, and by 0.5% in 2023 as a whole, the Kiel Institute for the World Economy said on Wednesday, cutting its previous estimate.

The sanctions alone are not to blame. While higher costs since sanctions on Russia have lowered output from energy-intensive industries such as chemicals, German manufacturing has been in a downturn since 2018, coinciding with the start of a global backlash against open international trade.

Meanwhile, the surge in inflation, now in its third year, has weakened the spending power of German households, which are buying fewer goods.

According to the statistics agency, sales in stores and their online equivalents fell in July and were 4% lower in the first seven months of this year than in the same period of 2022. In particular, households have been cutting back on food consumption as prices soar, buying 5.3% less than in the first seven months of 2022.

Hobbled by falling demand at home, German manufacturers are also under pressure in overseas markets. In July, the country's businesses sold goods valued at 130.4 billion euros -- equivalent to $139.86 billion, to the rest of the world, a decline from June and a 1% drop from a year earlier.

The surprising resilience of the U.S. economy despite rising interest rates has helped, with exports to the world's largest economy rising by 5.2% from the previous month. Sales to Chinese buyers were up a more modest 1.2%. Exports to the U.K., which have stagnated since the start of the sanctions, were down 3.5%.

German manufacturers also face stiffer competition from their Chinese counterparts in industries where they were previously dominant, including in Germany's flagship auto sector." [1]

Germany's chancellor Scholz is an enthusiastic supporter of deeply damaging Germany's industry sanctions on Russia. Germans started discussing how to remove him from power.  

1. World News: Germany's Economic Rut Gets Deeper, With Contraction Forecast. Hannon, Paul. 
Wall Street Journal, Eastern edition; New York, N.Y.. 08 Sep 2023: A.7.