The beginning of the deindustrialisation of the European economy.1 Jun 2023 10:15
Recession in Germany is a sign of Europe’s deindustrialisation
A lack of access to cheap energy (Russian energy) has made the continent less competitive.
Last week Germany announced that, after the government statistics agency revised its recent GDP figures, it was clear that the country was in recession. In recent history it has tended to hold up well as the global economy softened relative to some of Europe’s weaker economies. But this time it seems that Germany is leading the pack into recession.
With energy bills unlikely to fall to pre-crisis levels for at least two years
Qatar’s energy minister warned around the same time that the “worst is yet to come” for European oil and gas shortages. He would probably know, since Europe is relying heavily on Qatari LNG imports for their energy supplies.
Quantifying the impact of deindustrialisation at this early stage is quite difficult and a clear picture will only emerge in retrospect. But there are already some very notable trends in the data. The German services sector is booming while the manufacturing sector is cratering. This divergence explains why the German economy is currently experiencing only a very shallow or even “technical” recession.
Bluntly, the current contraction we are seeing in Germany’s manufacturing sector relative to its services sector is associated with a much larger downturn — something along the lines of what followed the 2008 financial crisis. Today we are seeing a very large relative contraction in the manufacturing sector that cannot be explained by the relatively modest weakening of the economy.
German and European deindustrialisation is not yet certain. There is a chance that, after the war in Ukraine is over, the Europeans turn once again to Russia for their energy needs. But right now, in the current diplomatic environment, this seems unlikely. If the current trajectory is followed for the next five to 10 years, however, it seems fairly certain that Germany and Europe will deindustrialise to a significant extent.
Extracts from UnHerd.
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