Germany still the “black sheep” in Europe, here’s why

Germany’s Economic Struggles Continue to Drag Eurozone Down

Germany remains behind in growth and confirms its position as the “black sheep” in Europe, also compromising the recovery of the Eurozone.

The German economy unexpectedly contracted in the second quarter, after skirting recession at the beginning of the year, demonstrating that the largest economy in the Eurozone is struggling to take off despite easing inflationary pressures.

While at different rates, other European powers – including Italy – showed an increase in GDP in the second quarter.
The German crisis thus becomes more evident and peculiar, even in a context of global uncertainty.

The uneven growth results in the region highlight the challenge facing the policymakers of the European Central Bank ahead of the September assessment of the Eurozone’s economic fragility, which could justify a further interest rate cut.

Europe Grows, But Not Germany.
German GDP Contracts

According to flash data from the EU statistical office, the Eurozone economy grew more than expected in the second quarter of 2024.

The region’s GDP increased by 0.3% in the three months to the end of June compared to the previous quarter.
Revised results published earlier this year highlighted that the Eurozone fell into a technical recession in the second half of 2023, as GDP contracted in both the third and fourth quarters of the year.

However, the big negative surprise continues to be Germany.
The largest economy in the Eurozone unexpectedly contracted by 0.1% in the second quarter, falling below the expectations of analysts interviewed by Reuters, who had predicted a 0.1% growth for the country.

Germany stands out as one of only four countries whose GDP shrunk in the three months to the end of June, according to the EU statistical office.
Latvia, Sweden, and Hungary were the other three states that experienced contractions.

Klaus Wohlrabe, head of surveys at Ifo, stated that the German economy was “stuck in crisis” and that a significant improvement was not expected in the third quarter.

The negative performance of Germany casts a shadow over the economic resilience of the entire Eurozone.
According to the Bloomberg Economics Surprise Index, since May, economic data released for the Eurozone has generally been worse than expected.

Who is Growing in the Eurozone?

Ireland recorded the highest growth, at 1.2% in the second quarter, while the second-largest economy in the Eurozone, France, showed a 0.3% GDP growth in the same period.

Spain experienced a stronger-than-expected recovery at +0.8%, while Italy only slightly slowed down, showing a 0.2% expansion.

It is worth noting that France’s reading only partially captures the impact of the elections announced by President Emmanuel Macron on June 9, three weeks before the end of the second quarter.
Since then, indicators have shown an increase in business uncertainty, as companies fear that a new government may increase labor costs and taxes.

This bleak outlook is likely to persist, considering that no party emerged from the elections with enough seats to form a workable majority in parliament.
Macron has hesitated to appoint a new prime minister, leaving an interim team in place at least until the end of the ongoing Olympic Games in Paris.

The Spanish economy has outperformed its Eurozone peers in recent quarters, supported by strong employment figures.

In Italy, the growth outcome was in line with the average economists’ forecasts for the quarterly figure.
With a +0.9% increase, the country exceeded expectations on an annual basis.