[Wirtschaft] Deutschlands Rezession erklärt - Möglichkeiten des Handelns
Economic growth slumped in various countries in 2020. The reason for this is a negative price shock. As a result the countries affected by the price shock have to pay more for imports and at the same time lose demand and thus employment. However most of the affected countries were able to overcome this price shock. Yet Germany is stuck in its recession. Since 2022 there has been almost no economic growth. Inevitably the questions arise as to what the affected countries have in common as they share a comparable slump in 2020 and what the difference is that Germany of all countries remains in recession. While the cause of the slump in 2020 is the same across all countries Germany stands out with its obviously unsuccessful policies.
The Demand Gap
Just as several countries were hit by the negative price-shock the same countries also experienced a loss of demand. As a result of various events imports and especially energy imports became more expensive. The countries affected by the price shock thus experienced lower demand for their domestic markets with a larger share of that demand being tied up for imports. In addition the additional costs do not flow back in the same amount as demand for exports. As a result the countries affected by the price shock have to pay more for imports and at the same time lose demand and thus employment.
[1, ZCPIN]As a result the countries affected by the price shock have to pay more for imports and at the same time lose demand and thus employment.[1, UVGD] [1, UXGS] [1, UMGS] [1, UBCABOP]
The negative price shock and the resulting loss of demand for the domestic market can also be seen in the foreign trade and current account balances. The increased costs for imports and especially for energy imports are putting a strain on imports. Exports on the other hand have not been able to keep pace with the increased import costs. The result is a collapse in the foreign trade and current account balances are coinciding with the price shock.
Options for Action
It is logical that the negative consequences of the price shock could be offset, if the price shock was reversed.
If import prices and especially energy import prices could be reduced to match the previous price levels then more demand would be available for the domestic market.
However due to the confrontation resulting from the war in Ukraine and the destruction of the Nord Stream pipelines the room for maneuver for national governments is limited.
A reversal of the negative price shock is therefore rather unlikely.
Regardless Germany had a trade and a current account surplus both before and after the negative price shock.
Thus despite the increased costs for imports and especially for energy imports Germany remains competitive.
Reducing the costs of imports and especially energy imports is not absolutely necessary for economic growth. The lack of demand caused by the price shock can be compensated for.
Reducing the costs of imports and especially energy imports is not absolutely necessary for economic growth. The lack of demand caused by the price shock can be compensated for. Economic growth or even full employment doe not require a certain price for energy sources. Just as unemployment is a lack of demand for labor more employment can lead to increased production. The question inevitably arises as to how the supply of unemployed workers and the goal of economic growth can be reconciled.
Ultimately someone always has to go into debt amounting to future savings and nominal growth.
In fact the government can stimulate demand in the economy by spending more then it takes in. However demand results from the purchase of goods or services with money and they requires jobs. New money is created when someone goes into debt. And systematically there is no difference between full employment because companies borrow for investment and consumption or the government borrowing and thereby stimulating investment and consumption. Ultimately someone always has to go into debt amounting to future savings and nominal growth.
Consequently it is logical that the state compensates for the demand lacking in the private sector. For this form of demand-side policy the state must then spend more than it takes in. Tax cuts meaning the reductions in revenue have a direct impact. With constant expenditures this results in a public deficit and this public deficit is the surplus of the private sector. However it is necessary that tax cuts take place where the spending ratio is high or the savings ratio is low. Consumption taxes such as value-added tax or electricity tax are particularly suitable for this purpose as they are levied on expenditures anyway. Investments in infrastructure for example are only conditionally suitable for covering the demand gap despite its poor condition because planning and approval processes delay the process. However in the long term infrastructure investments can cover the demand gap and have the collateral benefit of improving the infrastructure. The demand gap could initially be covered by tax cuts as described and subsequently by infrastructure investments.
Proof
The idea that the state can simply goe into debt can be unsettling. And the claim that the state can generate economic growth with this debt may sound unbelievable. However there are actually several real-world examples of this approach.
[1, UBLGE]There is a clear correlation between the size of the budget deficit and economic growth.[1, OVGD]
As a result of the price shock and its causes the EU Commission temporarily relaxed the debt rules. Several euro-zone member states took advantage of this opportunity Germany however did not. From 2020 to 2024 it is clearly evident that France, Italy and Spain had large public deficits while Germany had the smallest one. And just as the budget deficits differed so did the growth rates. There is a clear correlation between the size of the budget deficit and economic growth. Furthermore the inflation rates of all the countries shown differ only slightly. There was no higher inflation rate resulting from higher budget deficits nor were there high inflation rates solely due to budget deficits.
[Economics] Germany's Recession Explained - Relevant and Myths separated from each other
[Economics] Germany's Recession Explained - Myths and Dead Ends - 2025-11-28
[1] AMECO database
https://economy-finance.ec.europa.eu/economic-research-and-databases/economic-databases/ameco-database_en
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