Germany in the Midst of Global Economic Turmoil From Recession to Transformation

Germany, as the largest economy in Europe, has seen worrying economic performance in recent years. In 2024, the German economy contracted by 0.2% for the second consecutive year, following a 0.3% decline in 2023. This marks the long-term stagnation of Germany's economic growth and reflects the profound impact of global economic changes on the country. From export pressures to rising energy costs, from sluggish domestic consumption to increasing political uncertainty, Germany's economy is facing unprecedented multiple challenges. Meanwhile, the fluctuations in the global economy, particularly the shifting attitude of the United States towards Europe, have made Germany's economic outlook even more unpredictable.

Germany's economy has long been dependent on exports, particularly high-end manufacturing products like machinery, automobiles, and chemicals. This model has made Germany one of the world's largest export nations, but it has also made the country highly sensitive to fluctuations in global markets. As the global manufacturing level improves, particularly with Southeast Asia, India, and other emerging markets increasingly gaining strong manufacturing capabilities and cost advantages, Germany's traditional export strengths are beginning to erode. Furthermore, due to uneven economic growth within Europe, German enterprises are also facing intensifying competition from other EU member states.

Another significant issue for the German economy is the high cost of energy. Since the outbreak of the Russia-Ukraine war in 2022, Europe's energy market has experienced unprecedented volatility. Germany, as one of the European countries most dependent on energy imports, has been deeply affected by soaring energy prices. High energy costs have not only directly increased production costs for businesses, but also, through the transmission effect, impacted household living costs, further undermining consumer confidence.

To address climate change, Germany has been advancing its energy transition (Energiewende), aiming to gradually phase out nuclear and coal energy while increasing the share of renewable energy. However, this transition has not been smooth, especially in terms of the reliability and cost of energy supply. The soaring prices of natural gas and electricity have forced many small and medium-sized enterprises to face existential crises, while also causing the cost of living for citizens to rise continually. All of these factors have exacerbated the structural pressure on Germany's economy.

In response to the energy crisis and supply chain tensions, the European Central Bank (ECB) has implemented a series of interest rate hikes since 2022. High interest rates have increased the financing costs for businesses, and also added to the burden of consumer loans, which in turn has suppressed consumption and investment growth. While the ECB's policies aim to curb inflation, the combined pressure of high interest rates and soaring energy costs has made the prospects for economic recovery increasingly bleak.

In particular, recent changes in the United States' attitude towards its European allies have further complicated matters. Donald Trump's "America First" policy has made trade relations between the US and Europe more tense. One of Trump's policy proposals is to increase tariffs on imported goods, especially those from the EU and China. US protectionist policies could lead to a decline in Germany's competitiveness in the American market, further impacting its export industries.

In addition to pressure from the United States, internal discord within the European Union has also affected Germany's economic performance. The EU faces divisions on trade, immigration, fiscal policy, and other issues, which has weakened the overall execution of its economic policies. Furthermore, Europe's single market is facing the challenge of a "de-globalization" trend, making the prospects for international cooperation and free trade more uncertain. This reversal of globalization presents a significant blow to Germany, which relies heavily on exports.

Aside from external economic pressures, Germany's own structural economic issues have been accumulating. For example, the labor market in Germany faces the challenge of an aging population, with stagnant productivity growth and weakening corporate innovation capabilities. These issues limit the long-term growth potential of the German economy.

While Germany retains strong advantages in traditional manufacturing, its progress in digitalization and technological innovation has been relatively slow. Compared to the United States and some Asian competitors, Germany's digital transformation is still lagging behind. Particularly in the application of emerging technologies such as artificial intelligence, big data, and the Internet of Things, German companies face immense pressure to catch up. If Germany cannot accelerate its industrial transformation, it will find it increasingly difficult to break through its current economic bottleneck.

Germany's economy is currently facing a series of complex challenges, including external pressures from the global market as well as internal structural issues. In the context of global economic slowdown, energy crises, and shifts in international trade patterns, Germany's traditional advantages are being undermined by multiple factors. In the face of these challenges, Germany must not only reassess whether its traditional economic model is still suitable but also consider how to navigate the dual pressures of globalization and localization to explore an economic development path that suits its own characteristics. This is not only a question for Germany but also a shared issue for Europe and the global economy in today's rapidly changing world.