Sun, April 14, 2024

Germany will influence as a drag on growth in Europe

Germany and its economy

Germany will weigh on European growth until 2030 as it faces pressure to deal with a shrinking workforce and stagnant investment.

The agency sees Germany’s expansion potential at 1.05% over the medium term, compared with 1.54% for Europe, as rising costs related to the COVID-19 and the energy crisis weigh on public finances.

By the end of 2024, Germany’s economy will be around 1.25% larger than it was at the end of 2019, before the pandemic, compared to 5.74% for Europe.

The Berlin-based and Europe-focused rating agency said Germany faces economic challenges, including a shrinking working-age population, which should shrink by 0.84% yearly between 2023 and 2030.

Unease in the markets

Since Russia attacked Ukraine a year ago, there has been no shortage of pessimistic forecasts for the climate and the economy: geopolitical tensions may overshadow the fight against global warming. But a new feature based on a respected economic equilibrium model concludes that the opposite is true: a favorable climate and economic situation.

The model first creates market reactions: a shortage of fossil fuels causes prices to rise, demand to fall, and to some extent, extra supply from other regions of the world. As a result, EU economic output in 2022 in this case is 1.55% lower than without the Ukrainian war and energy crisis, and CO2 emissions are 12.34% lower. Even in 2025, economic output is still 0.63% lower.

But this loss of well-being, which is the main role of research, can be avoided. The research team also created a scenario in which the EU and national governments would begin particularly large energy-saving actions in 2022. This assumes the fuel consumption of passenger cars in the transport sector and the energy usage of private individuals. Households and service companies in the construction sector would drop by 10.5%.

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