Europe | Germany, 1920s

It is now almost cliché to say that the German crisis is due to the sudden collapse of the network formed by cheap Russian gas, Chinese demand and the defensive umbrella of the United States. The problems facing the German economy are structural rather than conjunctural.

Key points

• Key points:
• Starting in the short term, growth data for the first quarter of the year have come as a positive surprise compared to the low expectations. GDP grew by 0.2%, more than expected.
• PMI indicators have just passed the level that separates expansion from recession, mainly thanks to the services sector. The Chinese market is recovering, albeit more slowly than expected.
• But this slight improvement cannot hide the structural problems, which are varied and profound, and will be a major challenge over the coming decade. Demographics are as bad or worse than in other competitor countries, especially in view of the massive retirement of workers expected in the medium term.
• The most energy-intensive sectors are absorbing the shock of the Ukraine war, but the challenges ahead will continue to square the equation of the nuclear phase-out, a high gas price and some resistance to deploying renewables.
• Foreign competition is particularly fierce in the automotive sector, one of the pillars of German industry. The electric vehicle battle, based more on fourth-generation R&D and digitalization, is going to be hard.

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