Many simultaneous challenges are putting pressure on the German economy, as inflation rates are still far from the European Union’s target of 2 percent, in addition to rising interest rates as part of policies aimed at curbing inflation and its impact on investment and industry, in addition to the energy crisis and the impact of the slowdown in recovery. China, and various internal factors, including labor shortages, and other factors facing the largest economy in Europe.
From this perspective, the problems that the German economy is going through are great, but they remain more under control than their counterparts in European countries, especially the large ones. The difficulties of this economy actually began at a time when crises spread around the world more than two years ago, and broke into “corridors” that were worrying for the government in Berlin. The causes of these difficulties are still continuing, whether in terms of rising inflation, increases in basic interest rates, the exacerbation of geopolitical confrontations, and of course in terms of energy, which represented the cornerstone of the current faltering situation on the German scene. The most important point in light of this scene remains that the largest economy in Europe will not reach the critical stage in the foreseeable future at least, for reasons related to the composition of this economy and its strength derived from its generally good historical performance.
However, Germany is witnessing a wave of corporate bankruptcies that is the largest in decades, and this wave will continue next year, increasing the amount of pressure on the local economy, especially in terms of adding new numbers to the unemployed in the country, as well as losses for financial institutions exposed to… These companies. The challenges that the latter is experiencing will continue in 2024, especially in terms of energy costs, which have reached levels that are no longer tolerable for a large percentage of businesses in Germany. Although energy prices are lower than they were at the time of the outbreak of war in Ukraine, they are still putting pressure on the productive sector, in addition to the effects left by the disruptions experienced by supply chains.
The numbers of companies that declared bankruptcy this year are very worrying, especially since they will continue into the next year. In 2013, there were about 18,000 bankruptcies, an increase of approximately 23 percent over the previous year. While expectations revolve around the number of bankruptcies reaching new levels in the coming months, especially since more than 300,000 companies are at risk of bankruptcy, with the absence of indications indicating the possibility of stability returning to the path of the local economy soon. However, this does not negate the importance of the government support packages launched by the country in the wake of the outbreak of the Corona pandemic, as well as the facilities provided to German institutions to confront the entitlements resulting from supply chain disruptions and significant rises in consumer prices. Note that the European Central Bank still adheres to its open-door policy in treating inflation, including the possibility of raising borrowing costs if the need arises.
There is no doubt that the difficulties will not stop in the German arena, as the automobile sector deteriorated last month, and the real estate sector is suffering from great difficulties, including the default of some construction companies. Aside from the political differences over support packages and the method of recovering government funds pumped into these operations, the German economy remains the most stable compared to the economies of countries such as France, Italy, Spain, and of course Britain. Germany does not suffer from high government debts like others, and this reduces the pressure on it, unlike Britain, where the size of its public debt exceeded its gross domestic product, and the same applies to the French arena, for example. But fears of an expanding circle of companies vulnerable to bankruptcy raise the level of anxiety in Berlin, which is immersed (like other major capitals) in reaching a quick end to inflation and controlling supply chains, in the hope that the geopolitical confrontations that contribute to increasing difficulties here and there will ease.
In conclusion, in light of the suffering of the German economy, it is facing difficulty in emerging from the economic and financial crisis that struck the largest economy in Europe and the third largest economy in the world. Hence, many companies will pay the price for this crisis, as tens of thousands of them were forced to declare bankruptcy, and it is expected that the series of bankruptcy declarations will continue during the coming period.
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