Germany on the verge of a new recession, Italy is close to us

Germany is falling into the second economic recession since the beginning of the pandemic, while Italy risks following immediately
German Economy

The German economy is expected to fall into recession for the second time since the pandemic began. The Bundesbank predicts this, according to which GDP in Germany will contract in the current quarter after having recorded a -0.7% conjunctural in the last quarter of 2021. And the central bank in Frankfurt points out that this time the retreat would also involve the other sectors, not just the services sector, typically the most affected by the anti-Covid restrictions in the first phase.

Germany only grew 2.8% last year, but by 2020 its economy had fallen far less drastically than Italy, scoring -4.6%. On balance, the German economy has returned to 98% of its pre-Covid level, while the Italian one has risen to 97%.

In other words, Germany continues to do better, despite the ongoing recession. And the prospects do not appear encouraging in our country. After bouncing 6.5% in 2020, our economy would crash into the Omicron variant and expensive utility bills.

Recession risk also for Italy

Confcommercio estimates that GDP in January would have decreased by 1% in December and that inflation in February will rise to 5.6% from 4.8% last month. In the last quarter of 2021, despite a marked slowdown, Italian GDP had expanded by 0.6%.

Officially, assuming there was a negative change in the first quarter of this year, we wouldn’t be in a recession yet. It matters little, however, because the braking in progress is evident. Many businesses are either shutting down their plants or slowing down production due to the inability to keep up with rising energy prices.

The second German recession in two years, then, creates more of a problem for exporting companies in the Northeast, linked to the automotive sector in Germany.

The chip crisis and the consequent reduction in car production in the world are dealing a severe blow to the German economy, which just before the pandemic produced 4.7 million vehicles, exporting no less than 3.5 million. Last year, however, production stopped at 3.1 million and exports continued to fall well below 3 million.

This less temporary than expected difficulties, together with high inflation, have reduced the confidence of German firms. The IFO index did nothing but fall back from the highs of June to December, rising for the first time in January. On the other hand, consumer morale is not positive either, remaining clearly below pre-Covid levels and in negative territory.

In February, it scored -6.7 points, albeit slightly up from -6.9 in January. But at the beginning of 2020, it was at 10, a sign that the effects of the pandemic on the mood of businesses and households are lasting longer than expected. On the other hand, the Germans were historically accustomed to very low inflation rates even when in the rest of the West they were galloping. Now, they find themselves with consumer prices up 5% annually, the highest since reunification.

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