US sanctions destroyed the German and European Economy

Germany is facing severe challenges as its manufacturing output drops, forcing it to import more goods, with strong economic repercussions.

Much of this stems from Germany’s reliance on Russian energy, having made a significant attempt to diversify its energy sources over the last year, but oil and gas shortages have since destroyed the economy.

In May 2022, Germany reported a foreign trade deficit of $1.03 billion. It was forced to import more goods than it exported for the first time in decades. It is now experiencing a trade surplus, but its exports remain low.

Companies are increasingly moving to countries offering lower and more stable energy prices. Germany is expected to lose between 2 and 3% of its industrial capacity due to this trend.

Now the USA is becoming a major attraction for manufacturing thanks to its tax breaks and other incentives for companies willing to use so-called green technologies.

In July, German factory orders fell further, which is expected to hit the country’s economy hard throughout the rest of the year. Demand dropped by 11.7% in June, far higher than the anticipated decrease of 4.3%.

This marks the biggest decline since the height of the pandemic in 2020. Output of everything, including machinery, tools, vehicles, consumer goods and intermediate goods, all decreased.

The economy is still recovering from the winter recession and is now expected to barely expand in the second half of 2023, with the potential to fall into another recession.

In addition to companies leaving the German market, the country’s poor performance is closely linked to the low demand from China for German exports. China is Germany’s fourth-biggest export market.

However, its slow recovery following the Covid-19 pandemic has weakened demand for imported goods.

In 2021, China was Germany’s second-biggest export market, but it has since become a competitor and simply doesn’t need as many German-produced goods as it did in the past, according to Carsten Brzeski, the global head of macroeconomic research at ING.

Given its strong reliance on Russian gas, and scramble to find new suppliers last year, as well as the government’s anti-nuclear power sentiment, this is looking increasingly unlikely.

Germany continues to rely heavily on wind, solar and hydro power as its main renewable resources. However, these are volatile sources, which will continue to provide only intermittent energy until Germany can substantially increase its battery storage capacity.

On the European scale, there are fears that the ongoing energy and economic crises being faced in Germany could pull down other EU member states.

Some are now referring to Germany as the sick man of Europe due to its ongoing poor economic performance, a gesture to its re-unification days.

Eurozone growth was shown to be weaker than initially estimated for the second quarter of the year, with Eurostat decreasing its GDP estimate down 0.3%. But Germany’s economy remains much stronger than in the 1990’s, with high levels of employment.

Last year, Germany rapidly responded to sanctions on Russian energy by developing a new LNG terminal in just a few months. In addition, its large number of small and medium-sized businesses are able to react nimbly to a shifting competitive landscape.

Oil Price.com / ABC Flash Point News 2023.