From the locomotive of the European economy Germany becomes its weakest link, as it depends on export and received repeated external blows, reducing them. As noted in a related Financial Times report, within a week the German finance minister, Christian Lindner, bluntly described the plight of Europe’s largest economy when he spoke of its “fragile” outlook. Its growth forecasts are being revised down, life has become “much more expensive for too many people” as gas, energy and food prices rise.

German Finance Minister Christian Lindner spoke of a fragile outlook.

Along with soaring inflation, its industries are being hit by lingering supply chain problems and declining global demand. As Clemens Fuest, head of the Ifo economics institute, notes, “It is worrying that the economy is showing weakness across its range at the moment.” In the earlier periods of the crisis, the services sector suffered, but the industries recovered, or vice versa, and now both have suffered.

The German economy stagnated in the first and second quarters of the year when Eurozone there was an increase of 0.7%. Last month, the IMF cut its 2023 growth forecast for Germany by 1.9 percentage points to 0.8%. While Italy, Spain and France delivered better-than-expected growth thanks to an impressive recovery in tourism, Germany relied only on domestic demand. But as consumers see their purchasing power decline due to inflation, spending is cut back. Retail sales fell 8.8% year-over-year, the biggest drop on record.

The economy is now so fragile that many fear it is headed for a technical recession, as it is after two consecutive quarters of contraction. At the end of last month, the association of German industry, in a statement on the matter, stressed that Germany’s chances of slipping into recession are constantly increasing. The country’s households and businesses are suffering from high energy prices that are fueling inflation, while China’s zero-tolerance policy on the coronavirus has led to a “paralysis of international trade.”

Economists emphasize that everything will depend on whether Russia completely cuts off natural gas supplies, and whether Beijing closes ports and factories in the event of an increase in cases of coronavirus. Last month, the Ifo business confidence index fell to its lowest level in more than two years. Industrial production rose slightly in June, but orders fell 0.4%, marking the fifth straight month of decline. Today they are 9% below the level they were a year ago. And the challenge for the coming months will be to allow businesses to navigate between the Scylla of a heart attack in the supply chain and the Charybdis of rising gas prices.