Germany is rapidly becoming the sick man of Europe, a title usually awarded by continentals to the UK.
Production is falling as are exports, and inflation is non-existent as the recession intensifies and business income is falling.
The banking system is weak and the government, led by chancellor Angela Merkel is in a state of denial about the problems and the cure, preferring to criticise other countries and lecture central banks on their profligacy.
Excluding smaller economies like Iceland and Ireland (which had its credit rating cut for a second time in nearly four months this week), Germany’s financial system remains under enormous pressure, industrial output has weakened again, and companies large and small are failing or asking for Government help.
Australians might be bemused by the continuing argument over whether we are in recession.
Compared to Germany we have a healthy, vibrant economy, with strong (but greedy) banks, low debt and unemployment that will peak well below Germany’s.
At the moment the Japanese, US and UK economies would be at the top of anyone’s list where the damage from the crunch and recession has been greatest.
But Germany is on its way to taking that unenviable title.
In fact if anything, the German economy seems to be sliding (sideways at best); the woes the country finds itself in are serious, more so given the continuing state of denial of the government, which prefers to blame others and criticise central banks in other countries for stimulus spending.
Inflation in Germany, Europe’s biggest economy, fell to its lowest in 22 years in May as manufacturers’ revenues dropped and business failures increased, the Federal Statistical Office said on Wednesday.
The inflation rate fell to zero in May on an annual basis, down from 0.7% in April.
Germany joins China and Japan in having negligible inflation at a consumer and producer level.
If it continues for the next couple of months, fears of deflation will come to the forefront, just as they are in Japan at the moment.
That was mainly due to higher energy and food prices in May 2008, but also suggests consumers are buying less, causing retailers to slash prices and business to cut prices as well to keep buyers interested.
Energy prices fell about 8%, while food prices slid 1.2% compared to year-ago levels.
In a separate release, the office said revenues in the manufacturing sector fell 23% in April on the same month of 2008.
Exports fell a surprising 4.8% in April from March and a huge 28.7% from April last year, while industrial production dropped as well.
German manufacturing’s domestic sales fell by over 17% in April, while foreign business fell a nasty 30%.
Car manufacturing and parts making saw a 37% fall in April on April of last year, despite the rising sales driven by the car scrappage scheme.
Some commentators have blamed the downturn on a 10% rise in business failures in Germany in the March quarter, compared with the same quarter of last year.
More than 7,600 business insolvencies occurred in the latest quarter compared to about 7,000 in the first three months of 2008.
Defaults, failures and appeals for help from companies in the heart of the economy are becoming commonplace.
Arcandor, the owners of the country’s second biggest department store chain called Karstadt, which has a 53% stake in UK travel group Thomas Cook, plus a chain of sporting goods stores and a mail order business, collapsed after the government rejected appeals for close to one bullion in euros in state aid.
Arcandor is likely to be broken up by its bankruptcy trustees, with the owners of the rival Metro group trying to buy the Karstadt chain to give it retailing supremacy in Germany.
The European Commission has already expressed reservations about that plan.
And Heidelberger Druck, the world’s biggest printing equipment group, says it is expecting a state bailout to save it from collapse.
The company has been hit hard by the recession, especially in the newspaper and printing industries as the slump and the new digital world wreak considerable damage on its sector. It wants 850 billion euros of loans and state guarantees, a similar sum to that sought by Arcandor.
Heidelberger’s future looks very grim, given the depression the world’s newspapers find themselves in as does the printing sector generally.
Porsche, the sports car group, has sought to sell 25% of itself to a Middle Eastern investment group in Qatar after its attempt to take over Volkswagen failed, and the Schaeffler-Continental group of car parts and tyre companies which resulted from a high priced takeover last year that came undone, is also pressing the government for urgent aid.
Both are looking at weak sales this year, despite a controversial support scheme from the government.
Opel, the German arm of General Motors, may be sold to a Canadian/Russian group as part of the deal to try and save GM. There’s over 1 billion euros of government aid, and probably more in that deal.
Other buyers are sniffing around Opel, but it will only be sold with Government aid.
The German government’s major assistance to industry so far (apart from banking) has been the 5 billion euros to support the scrappage scheme (for vehicles nine years and older) over the year to December.
That has helped car production in Germany (but not exports), helped new car dealers, but has damaged used cars, the scrap metal industry, car repairs and hurt other retailers as consumer
