Insights into Germany’s Economic Breakdown

Germany’s economy is stuck in the mud — a lot like its auto industry. Our October Global Market Perspective drives the point home:

On August 12, Bloomberg reported that the German economy will barely grow at all this year. “The downbeat assessment came after data showed that the country’s industrial woes continue to hold back growth, causing Europe’s biggest economy to unexpectedly shrink in the three months through June.”

Despite Germany’s shrinkage, economists forecast 1.1% growth for 2025 and expect “continuous expansion through to 2026.” (Bloomberg, 8/12/24) Industrial activity, meanwhile, is expected to slowly improve. This optimism is clearly a function of stocks’ new all-time high, because innumerable signs point to an economic downturn that will be anything but the soft landing that economists anticipate. Take Volkswagen’s impending factory closures, for instance. In September, CFO David Powels acknowledged that two production plants are on the chopping block while noting that car demand has yet to even recover from the pandemic. However, the chart below shows that the situation is far worse than just a pandemic-induced drop in demand. The gray lines represent monthly new car registrations in Germany since the 1970s, while the blue line depicts a 50-period moving average. Car demand reached its all-time high in April 2000 — nearly 25 years ago — and the pre-Covid peak was actually just a weak countertrend bounce that quickly succumbed to new lows.

The swiftness of Germany’s economic breakdown cannot be explained by Covid-19 alone. For instance, Volkswagen last closed a major factory when it shuttered an assembly plant near Pittsburgh, Pennsylvania in 1988. That was more than 35 years ago. In Germany, the company has never closed a plant in its 87-year history.

Germany is hardly the only major economy experiencing woes. Read our Global Market Perspective to learn about an even bigger economy which is grappling with price deflation by following this link.

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