Never since the end of the war have so many factors interwoven into such a difficult economic situation as now. Germany is threatened with a deep recession. There are seven reasons for this.
Novelist Sebastian Jungers landed a world bestseller and director Wolfgang Petersen repeated it on the big screen: “The Perfect Storm” is the story of a fishing boat off the east coast of the USA that gets caught up in a weather phenomenon that occurs at most every 100 years: A low pressure area is moving in from the mainland out to sea, a Canadian high pushes cold air south, and Hurricane Grace swirls warm, humid debris across the ocean. The men on the boat “Andrea Geil” fight against the forces of nature and lose. For George Clooney, it was one more tragic heroic role. The fascinating thing about the title is its polarity: Even evil can be perfect.
Economists have therefore adopted this title when describing the result of many ingredients that are brewing in the world’s financial markets in such a unique way that more than one ship can sink. The perfect storm they envisage can impoverish people and throw them onto the streets, it can crush companies, it can drag entire economies into the abyss. And of all things, there is now talk of such a perfect storm. US star economist Kenneth Rogoff already has him on his radar. He speaks of the danger of a simultaneous recession in Europe, China and the USA. Economics Minister Robert Habeck (Greens) warns of a global recession. There are currently several interconnected crises: “The high inflation, the energy crisis, the food shortage and the climate crisis.” In addition, “the world threatens to break up into power blocs”.
Observers will not forget the appearance of the 91-year-old star investor George Soros at the recently concluded World Economic Forum in Davos. He groped his way to the lectern with heavy steps. His often rather bleak forecasts – they all came true, some worse than even Soros could have imagined. With soft words he deals with the threat of totalitarian regimes like Russia and China. He, who survived the Holocaust, addresses his world audience in a shaky voice: What is coming now “may not survive our civilization”.
Unlike in the novel, the “perfect storm” that plagues Rogoff and Habeck and makes Soros look pessimistic has not three but seven ingredients that are entangled with each other with varying degrees of force. They are:
She was at the beginning of the hot phase of the storm. The world hadn’t seen anything like it since the Spanish flu more than 100 years ago. In the age of MRI scanners and heart transplants, people all over the world suddenly died from a virus. The enforced lockdowns weakened the economy and government coffers. New variants of the virus are always ahead of vaccinations and cause renewed lockdowns at critical points in world trade, such as in Shanghai. The danger has not been banned, it has just slipped to the edge of perception. The number of infections is already rising again. Popular virologists like Christian Drosten warn of the next corona wave after the summer holidays.
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Unimaginable for most people who live in the European Union and have dreamed of everlasting peaceful coexistence on their continent since the fall of the wall, Russia invaded Ukraine on February 24, unleashing not only a military but also an economic war. It’s about energy deliveries to the west and grain deliveries to the whole world, which coming from Russia suddenly come to a standstill.
Germany, as one of the main buyers of Russian energy supplies and also one of the few countries in the world to have scrapped its nuclear power plants, slipped completely unprepared into an energy crisis the likes of which has not been seen since the oil price shock of 1973. The federal government has declared the alarm level for the gas supply. If even less gas comes from Russia in the next few weeks, businesses will have to close and apartments will stay cold in winter. The high energy costs hit Germany particularly hard, Europe a little less, and the rest of the world hardly at all. In international competition, Europe is at a disadvantage.
More than ten years ago, when the high debt levels of some countries in the EU threatened to blow up the euro, the then President of the Central Bank, Mario Draghi, announced his “whatever it takes”. The intention behind this was to keep the printing press running until there was enough money on the market to finance the national debt.
That, combined with energy prices and the aftermath of the pandemic, has pushed inflation to a record high, currently more than 8 percent. This means that with a net wage of EUR 50,000 per year, the purchasing power of a family is reduced to EUR 46,000 within a year. If she wants to compensate for this, the summer vacation, for example, falls flat. Dissatisfaction grows.
Directly related to inflation is what central banks are prescribing as an antidote: rising interest rates. Not a bad idea per se – it just comes too late.
The consequence: either central banks raise interest rates as hesitantly as in the EU, then the remedy does not work against inflation. Or they take a more courageous step, as in the USA, in which case the interest rate hike strangles economic growth because loans for investments become too expensive. There has never been a phase of rising interest rates in the USA that did not lead to a recession within twelve months at the latest.
Companies have long since realized what is in store for them. Some can no longer afford the energy costs, others lack material for their products and sales are halting. The result: the job market is turning. The labor shortage is mostly turning into a labor surplus, at least with a view to the amount of staff that companies can still afford during the crisis. The head of the Federal Employment Agency, Detlef Scheele, warns that if Russian gas supplies were to fail, the risk in terms of jobs in Germany would be “currently very high”.
The inflation rate in Germany is higher than it has been for 40 years. FOCUS Online therefore asks: your everyday life consists only of savings? You really have to spend every penny and are constantly looking for ways to make a living cheaper? We want to tell your story. Please write to us at mein-bericht@focus.de. Please briefly describe your situation to us in an e-mail and also tell us when we could contact you by phone in the next few days. Thanks very much!
He then considers short-time work and a sharp increase in unemployment to be likely. Things are looking bleak on the other side of the Atlantic too. The prominent investor and stock market expert Dirk Müller analyses: “People, especially in the low-wage sector, are being laid off in droves. This comes in a situation where they are heavily indebted and the interest on their debt is through the roof.” At the same time, there is still a shortage of skilled workers. Germany produces high school graduates on the assembly line, but there is a lack of craftsmen, IT specialists and technicians. Orders are left behind because nobody can take care of them.
New cars from German manufacturers are still lined up in unused parking spaces and lack a chip at a crucial point to get the electronics going. The delivery is stuck. The same picture elsewhere: The real estate industry, which has been accustomed to success for years, suddenly senses that nobody wants to build anymore.
One reason for this: Nobody can calculate when and at what price building materials can be found. They are either stuck in containers that cannot be unloaded in time due to the pandemic, or they have become so expensive due to the rise in energy costs that they throw every construction calculation overboard.
Russia’s regime has become an enemy and many are realizing that totalitarian and thus unpredictable structures, like those in Moscow, also prevail in Beijing. The leadership there is embroiled in a trade dispute with the US, is pursuing a zero-Covid strategy that is clutching the economy and slowing down its decades-long massive growth rates to normal levels.
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At the same time, she suppresses rebellious peoples in her vast empire, such as that of the Uyghurs, and shows the atrocities she is capable of. All of this leads to the greatest upheavals in their own country: the real estate market has collapsed. The two largest real estate developers in the giant empire only survive thanks to state aid. China is one of Germany’s most important trading partners. So far, companies have been able to rely on the fact that if things don’t go well here in Germany, things will run like clockwork in China. But that knowledge is history.
The book The Perfect Storm, which is based on real events, says that such a rare combination of factors created a situation that “couldn’t possibly have been worse. The storm produced ten-story waves and winds of 120 miles per hour. He lashed the sea to unimaginable heights in a way that few people on earth have ever seen.” The next day the spook was over. The “Andrea Geil” and her crew, however, had disappeared from the surface.
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