[Salon] Deep in the crisis

[Chas Freeman <cwfresidence@gmail.com>]

https://www.german-foreign-policy.com/news/detail/9814

Deep in the crisis

Recession, production declines, rising insolvencies: The German economy starts the new year with desolate prospects. The rivalry with the USA and economic wars against Russia and China continue to damage it.

08JAN2025

Recession and insolvencies

The German economy has started the new year with a desolate prospect. Although official data on the development of the gross domestic product in 2024 is not yet available. According to calculations by the Handelsblatt Research Institute (HRI), however, German economic performance, which already shrank by 0.3 percent in 2023, also decreased in 2024, this time by 0.2 percent. For 2025, the HRI expects a further minus of 0.1 percent. It would be the first time in the history of the Federal Republic that the economy misses any growth in three consecutive years. 1] According to the HRI, "the gross fixed investments crucial for innovation and growth ... will continue to shrink" and in 2026 will only be "at the level of the end of 2016". The Handelsblatt states: "There has never been five years of shrinking investments in the Federal Republic since the beginning of the data series in 1960." Only company insolvencies, of which around 22,400 were registered last year, have increased, a good tenth more than in 2023.[ 2] The number of large-scale insolvencies of companies with an annual turnover of more than ten million euros increased by 30 percent to 364. Experts do not rule out an increase in insolvencies to the level of the financial years 2008/09 – up to 32,000.

Breaks in production

The decline in production is also serious. According to preliminary calculations by the Federal Association of German Industry (BDI) in November, a minus of three percent was to be expected for the past year; it was, it was said, "the third year in a row with declining numbers". 3] For 2025, the BDI assumes a further production decrease. In a year-on-year comparison, passenger car production in Germany was able to barely hold its hold, which reached the previous year's value with 4.1 million vehicles. However, there was a downward trend during the year; the December value was ten percent below the value of December 2023.[ 4] The Association of German Mechanical and Plant Engineering (VDMA) assumed "a production decrease of 8 percent in real terms" for 2024 compared to the previous year's figure and expects a further, albeit slightly smaller, decrease of around two percent for 2025.[ 5] With chemistry, the third of the three German top industries is also affected. It is true that the production of chemical raw materials increased by eight percent in 2024. However, it had recorded a collapse of a total of a quarter in 2022 and 2023. Accordingly, the production of the chemical industry as a whole was still 17 percent below the volume of 2018.[ 6] For 2025, the industry expects a plus of 0.5 percent at most.

Failed high-tech projects

While the German economy is in a deep structural crisis, three ambitious projects that should provide the local industry with the connection to the world's top in central future industries are probably on the vose of failure. For example, the US company Intel wanted to build a state-of-the-art semiconductor plant in Magdeburg; of the costs of over 30 billion euros, ten billion euros were to be covered by state agencies. In the meantime, however, Intel has skidded; Group CEO Patrick Gelsinger, who had negotiated the investment and the subsidies for it, recently had to give up his post. Economists explain that Donald Trump's election victory has further reduced the probability that the factory, whose construction had already been put on hold for two years in September, will be further built. 7] The US chip manufacturer Wolfspeed finally canceled its plans to build a factory in Ensdorf, Saarland, together with the automotive supplier ZF, to build a factory for the production of semiconductors made of silicon carbide in October.[ 8] In addition, the plans of the Swedish battery manufacturer Northvolt to build a state-of-the-art battery factory in the northern German heath have burst. Northvolt, whose largest shareholder is VW, is in US insolvency proceedings. 9]

Transatlantic Battles

If "earlier macroeconomic weak phases", as the Handelsblatt states, could usually be overcome by "increasing foreign demand", which "then resulted in increasing domestic investment and income" [10], this is currently not in sight; on the contrary. On its largest sales market, the United States, German industry is threatened with a major market in Washington on 20. January may be a debacle. If the president-elect Donald Trump does his threat to impose flat-rate duties of 10 percent - in the event of a conflict even 20 percent - on all imports, including those from Germany, then the German economy is facing losses of up to 180 billion euros in the years from 2025 to 2028, according to the calculation of the Institute of the German Economy (IW) from Cologne, which is close to business-oriented, the German economy is facing losses of up to 180 billion euros in the years from 2025 to 2028; German growth would suf, which could amount to 1.5 percent of economic output. IW director Michael Hüther says: "For Germany, this would be a disaster for export-strong." 11] Analyses that essentially clearly confirm these fears are now also available for individual industries; for example, the automotive industry, which is already in crisis, must expect further declines. 12]

Expensive economic wars

In this situation, Berlin and the EU are starting to enter the economic war against China on a larger scale. Last year, Brussels decided on extensive tariffs on the import of electric cars from China [13] and imposed comprehensive sanctions for the first time against companies from the People's Republic of China, which it accuses of supplying the Russian defense industry [14]. In return, Beijing has imposed initial export controls on the export of raw materials and is considering restrictions on the export of technologies needed to manufacture modern batteries. 15] Any further expansion of the customs and sanctions battles probably threatens to inflict new damage to the Chinese, but most likely also to the German industry, which is already staggering. The current crisis in the German economy is to a considerable extent due to the war of sanctions against Russia, which included, among other things, the renunciation of low-cost Russian pipeline gas and thus deprived German industry - especially the chemical industry - of a central basis of its strong competitive position. The escalating economic war against China has the potential to add numerous further, long-term, consequential damage to this damage in its own ranks.

[1] Dennis Huchzermeier, Bernhard Köster, Axel Schrinner: Federal Republic before the longest recession in history. handelsblatt.com 01.01.2025.

[2] Michael Scheppe: Experts expect company bankruptcies at financial crisis level. handelsblatt.com 07.01.2025.

[3] BDI expects large production decrease. handelsblatt.com 22.11.2024.

[4] Passenger car market in Germany 2024: Electrical production with new record - massive collapse in e-registrations. vda.de 05.01.2025.

[5] Julia Dusold: Production minus: Mechanical engineering calls for political U-turn. produktion.de 10.12.2024.

[6] VCI takes stock of pharmaceutical and chemical production 2024. chemieproduktion-online.de 12/16/2024.

[7] IWH: Intel-Magdeburg unlikely after Trump victory. n-tv.de 08.11.2024. S. also failing high-tech projects.

[8] Chipfabrik from Wolfspeed and ZF is about to end. Frankfurter Allgemeine Zeitung 23.10.2024.

[9] Gustav Theile, Benjamin Wagener, Christian Müßgens, Niklas Záboji: Failed Battery Dream. Frankfurter Allgemeine Zeitung 07.12.2024.

[10] Dennis Huchzermeier, Bernhard Köster, Axel Schrinner: Federal Republic before the longest recession in history. handelsblatt.com 01.01.2025.

[11] Thomas Obst, Samina Sultan, Jürgen Matthes: What threatens the transatlantic trade relations under Trump 2.0? Of tariff increases and retaliatory measures. IW Report 42/2024. Cologne, 24.10.2024. S. The Transatlantic Rivalry.

[12] Martin Hesse: Trump tariffs endanger 25,000 jobs. spiegel.de 20.12.2024.

[13] S. on the way to the punitive customs battle (II).

[14] Huileng Tan, Romanus Otte: EU imposes sanctions against Putin accomplices in China for the first time - and closes ports for 52 Russian shadow tankers. businessinsider.de 12/17/2024.

[15] Lu Yutong, Han Wei: China to Restrict Exports of Lithium Battery Technologies. caixinglobal.com 03.01.2025. S. also China's second counterattack.