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Reuters

The German soccer team's romp to victory in last month's World Cup was hailed at home as a symbol of the country's emergence as a confident global economic power.
But in an ironic twist, the feel-good triumph in Brazil may have come at a time when Germany's new Wirtschaftswunder, or economic miracle, is coming to an end.
In recent weeks, the economy that proud German politicians have taken to describing as a "growth locomotive" and "stability anchor" for Europe, has been hit by a barrage of bad news that has surprised even the most ardent Germany sceptics.
The big shocker came on Thursday, when the Federal Statistics Office revealed that gross domestic product had contracted by 0.2 per cent in the second quarter.
"The euphoria that we've seen, the perception that the German economy is booming is simply misplaced," said Marcel Fratzscher, director of the DIW economic institute in Berlin.

	Everyone is partying and no one sees the threat of the looming iceberg

	ERIC SCHWEITZER, PRESIDENT, DIHK
So why is Germany suddenly ailing?
The stand-off with Russia over Ukraine has received its fair share of blame in the German media. But that conflict may not hit the economy with full force until the third quarter. It was only last month that Europe stung Moscow with sanctions.
Economists and some government officials acknowledge there are deeper reasons for the recent downturn. And they start at home, where Chancellor Angela Merkel's abrupt exit from nuclear energy after the Fukushima disaster in Japan and aggressive push into renewables has unnerved German industry. A recent overhaul of the country's complex renewable energy law has done little to alleviate uncertainty over future policy or assuage fears about German energy competitiveness.
"Energy-intensive industries in particular have lost confidence in the future of Germany as a business location," said Thomas Mayer, a former chief economist at Deutsche Bank who now runs the Cologne-based Flossbach von Storch Research Institute. "I think this is a major issue that will burden German industry for years to come."
Further souring the mood among businesses has been a rollback of economic reforms that Merkel's predecessor Gerhard Schroeder introduced a decade ago, and which many credit with fuelling a sharp drop in German unemployment and a rebound in growth that began in 2006 - when Germany itself hosted (but failed to win) the World Cup.
Since coming to power in late December, Germany's left-right "grand coalition" government has pushed through a reduction in the retirement age for some workers and won parliamentary approval for a nationwide minimum wage of €8.50 (HK$69.98) an hour. Next on the agenda are stricter limits on temporary workers.
The unintended effect of the policies has been to discourage firms from investing at home. Corporate investment in machinery and equipment, for example, hit an all-time low of 6.2 per cent of GDP last year, Elga Bartsch of Morgan Stanley points out, despite solid domestic demand dynamics, low lending rates and still-upbeat business sentiment.
Compounding the problem has been weakness in public investment. A study by the DIHK Chambers of Commerce and Industry last month said Germany was suffering from an overall investment gap of 3 per cent of GDP, or €80 billion a year. At roughly 17 per cent of GDP, total annual investment levels in Germany lie below those of other industrialised countries, which average more than 21 per cent.
DIHK president Eric Schweitzer likens the current mood in Germany to that on the Titanic: "Everyone is partying and no one sees the threat of the looming iceberg."
Germany still looks good compared to European partners such as Italy, whose economy also contracted by 0.2 per cent in the second quarter, and France, which admitted this week it would miss its deficit targets for this year after its economy stagnated in the period.
But economists including Fratzscher believe the German economy will continue to shrink in the third quarter, putting Germany into recession, and deepening concerns about the broader European recovery.
Reuters
Money Matters is on holiday


German growth locomotive is running out of steam

Germany's feel-good triumph in Brazil may have come at a time when Germany's new Wirtschaftswunder, or economic miracle, is coming to an end. Photo: EPA

Business

Economy

Global Economy

It might still look good compared to Italy and France but looming recession will only deepen concerns about broader European recovery


The German soccer team's romp to victory in last month's World Cup was hailed at home as a symbol of the country's emergence as a confident global economic power.


German growth locomotive is running out of steam

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}It might still look good compared to Italy and France but looming recession will only deepen concerns about broader European recovery

It might still look good compared to Italy and France but looming recession will only deepen concerns about broader European recovery