When we had not yet recovered from the crisis so severe that we suffered just a decade ago, market cycles seem to bring us another ‘surprise’ in form of a recession. This one is also pointing to Germany, which has always been the locomotive of the European economy. The forecasts warned of the slowdown in the German economy and that the country was going into recession at the end of this 2019, with all that that leads to the rest of European economies. Germany has always been the strong country in this regard, the one that has remained standing when others fell. However, by this time is one of the first economies to notice the ravages of this new recession that is predicted problematic.
The alarms have already jumped and everyone looks at the horizon with concern, because this new recession comes in a terrible amount for many countries that were now beginning to see the light at the end of the tunnel. However, it is a problem that seems inevitable, especially when it has started with one of the strongest economies in the world. Germany is already entering a recession and it seems that Angela Merkel is not able to stop this economic slowdown that could lead the continent to a new stage of crisis, with all the consequences for employment, macroeconomics, and more. How did we get to this point?
Synchronized slowdown of the entire European economy according to the IMF
The International Monetary Fund, one of the most important institutions in the world of macroeconomics, had warned months ago of the slowdown that European economies were going to suffer, this time with Germany at the helm. In fact, Germany is one of those who was going to be at the head of this slowdown was striking, although the IMF also refers to the fact that only Germany can be the anchor of salvation for other economies in the face of this problem that may get fully into a new recession. The effects of international tensions, such as those of the US and China, as well as Brexit and all the uncertainty it is causing, is one of the reasons the economy to drag that slowdown during these months.
The worst thing for the markets is not knowing what will happen for sure tomorrow. In a situation as chaotic as the one we are experiencing, the economy is also affected by this uncertainty, especially causing investments to decline doing markets to fall apart. A strong economy, like the German one, can solve the problem if it remains firm in these months of recession, but it is true that it will not only affect Europe, but the rest of the world, and the solution will depend greatly on the evolution of these tensions between countries, and everything that causes doubt in the market.
Companies are not investing because the crisis coming
The market has to move, that is one of the maxims that makes the economy move forward. Conservatism does not help anyone, because nobody wins by keeping their deposits. However, in times of doubt and fear, this is more common since nobody wants to risk losing their money. Companies, given the prospect of a possible recession on the horizon, are no longer investing. This causes the market to suffer too, as trust declines. It is the fear of the recession itself that will cause it to occur, since we are talking about something as volatile as market decisions, which in turn depend on the decisions of thousands of investors and companies.
Perhaps by having the last crisis so close, just a decade ago, companies have learned the lesson or become much more protective with their investments. They have understood that you have to be very attentive to these types of factors to see situations like this comming and be able to save them in the best possible way, if they cannot be avoided. This, however, causes market confidence to decline and the situation may become worse than expected. The first factors are already taking place throughout Europe, where unemployment data has risen again, something that always poses a problem for the labor market itself and for confidence in the economy.
Germany, the great industrial economy of Europe
Despite having gone through two terrifying world wars in the last hundred years, Germany has shown that when it has to do they know how to get ahead with the strength of its industry. After reunification, Germany has become the joint engine of the entire European Union, a group of countries that helped create as a common market more than half a century ago, precisely to improve relations and strengthen trade in this continent, of the same way it is done in the United States between different states and regions. Germany has always been the country that has contributed most to that European economy, and when it resents, the rest of the continent notices.
That is why the IMF has understood that, while the growth of the Euro zone will surely be negligible during 2020, much lower than in 2019, the German economy can be the salvation for the rest of the economy in the area. We will have to see if the forecasts for next year are met, especially considering that the countries to which Germany most often exports will be equally mired in tensions and in a poor growth of the economy. If any country can avoid the collapse of the European economy, that is Germany, of course, that in the worst scenarios it can continue to grow.
What other European countries must do to avoid a new financial crisis
But it is obvious that Germany is not alone in the whole continent, and that the other countries must also help in this problem. The situation may be similar to the one experienced in 2008, although the forecasts make this slowdown look more positive, assuming that it will not become as serious as the crisis experienced years ago. EU countries have learned to live with more austerity, the situation of banks are more healthy today, and that makes the strength of the continent to face a new situation of this caliber is greater than a decade ago.
Of course, everyone should try to increase their growth through consumption. If exports do not work, it must be domestic consumption that keeps the country growing and the economy remains. For this, resources must be provided to the population, both in salaries and greater stability in the area of employment. The opening to new markets can also be decisive to maintain that growth that derives in the strength in order to withstand much better the envy of the crisis. Growing countries are safe for investments, and when there is investment there is much more confidence and everything stabilizes.