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Europe's growth engine is sputtering. Can Germany's economy be revived?

·2 mins

Trains canceled. Flights grounded. Highways blocked by protestors. The world’s fourth-largest economy has got off to a bumpy start this year. A strike by ground crew on Wednesday caused travel chaos(after train drivers walked off the job in January over a wage dispute and farmers blocked roads in protest against planned cuts to subsidies). Widespread walkouts in a country known for strong legal protections for workers’ interests point to a deep malaise gripping Germany. Germany’s economy shrank last year for the first time since the onset of the Covid-19 pandemic. The International Monetary Fund predicts that Germany will be the slowest-growing major economy in 2024, with an increase of just 0.5%. Some forecasters even see an outright decline in output for the second consecutive year due to high energy prices, borrowing costs, and weak demand for German goods. The impact of the energy crisis from Russia’s war in Ukraine is evident in the long slump in Germany’s industrial production, which fell for the seventh consecutive month in December. Germany’s problems extend beyond the energy crisis to include labor shortages, red tape, and outdated physical and digital infrastructure. Germany needs an economic overhaul, according to economists. The government has introduced measures to incentivize investment, boost funding for start-ups, speed up infrastructure projects, and ease immigration rules for skilled workers. However, more is needed to set the economy on a new course. Structural changes are necessary, but political constraints on government borrowing limit the power of politicians to implement big spending programs. Germany has faced challenges in the past and successfully recovered, but the cracks in its business model are starting to show. Changes in the global economy, such as slowing growth in China and protectionist policies in the United States, have affected Germany’s export-driven economy. The country’s reliance on Russian gas, the spike in natural gas prices, and the decision to shut down nuclear power production have also crippled German industry. Internal political tensions within the governing coalition have hindered policymaking and increased uncertainty for businesses. The rise of the far-right party poses a threat to the economy and raises concerns among investors. Despite the challenges, Germany remains a leader in many industries and continues to attract foreign direct investment. German companies that can find new markets and adapt to a changing global environment may hold the key to reviving the country’s economy.