The economies of Europe have proved a drag on worldwide economic growth, according to new work from the OECD.
The organisation’s Interim Report September 2023: Confronting Inflation and Low Growth found global GDP advanced at an annualised pace of 3.2% in the first half of the year. While growth was strong in the US and Japan, however, it remained weak in Europe – particularly Germany.
The Organisation for Economic Co-operation and Development (OECD) wrote that interim projections for real GDP growth around the world peg it at 3%, with the US estimated to stand at 2.2%, China at 5.1%, and Japan at 1.8%. It added, however, that the European area would be only 0.6% – 0.3 percentage points lower than predicted.
Moreover, the OECD predicted Germany would see a 0.2% fall in its GDP, compared with increases of 1% in France, 0.8% in Italy and 2.3% in Spain. This comes in the same week that Deutsche Bank CEO Christian Sewing warned Germany could potentially end up as the “sick man of Europe”.
Speaking at the Handelsblatt Banking Summit 2023, Sewing said that structural weaknesses were holding back the economy, adding these should be addressed immediately. He also cited high and unpredictable energy costs, slow internet connections, outdated rail networks, digitalisation backlogs, a lack of skilled workers, excessive bureaucracy, and long approval procedures.
Darkening outlook
Sewing is far from the only critic of the German economy. Writing for Barrons, for example, Dennis Lachman, senior fellow at the American Enterprise Institute, suggested Germany’s weakness was darkening the global economic outlook.
“A whole variety of past economic policy mistakes cast a dark cloud over Germany’s longer-run economic prospects,” he argued. “Among the more glaring of these was Germany allowing itself to become overly dependant on Russia for its energy supply. As a result of this dependence, and in light of the country’s large, energy-intensive heavy industry sector, Germany was the country hardest hit by the cessation of Russian natural gas exports and the spike of natural gas prices following Russia’s Ukraine invasion.”
He added: “Germany’s dependence on the Chinese export market is now looking like another one of these policy errors. China’s economy is on the cusp of a Japanese-style lost economic decade in the wake of the bursting of its property and credit market bubble.
“According to the OECD, among the advanced economies, the German economy has the highest exposure to the Chinese economy. German exports of goods and services to China amount to around 3% of Germany’s gross domestic product, while revenue from Germany’s Chinese subsidiaries account for over 6% of Germany’s GDP.”
Earlier this week, the Bundesbank published a piece, asking whether the nation’s business model was in danger. It wrote that the economy was well-positioned, despite its myriad challenges including a demographic shift, a need for digitalisation and an overreliance on China as a trade partner.
The Bundesbank noted: “German enterprises continue to make great use of the opportunities offered by international markets. Furthermore, they have weathered the energy crisis well. The authors found the German economy also has a well-trained workforce, infrastructure that remains sound, consensus between management and labour and comparatively stable underlying conditions. However, the government must ensure these clear challenges can be overcome by amending the institutional framework.”
