This year the International Monetary Fund anticipates the slowdown of the growth of the world countries’ economy. Germany is the largest economy of the European Union, a significant regional and global player, but recently we experience the increase of the protectionism of countries’ economies. Should we worry about the most significant member of the European Union that influences also the development of Latvia, tells Rolands Petersons (Pētersons) (Latvia), member of the board of Norman Logistics Sp.zo.o.
According to the Index of Economic Freedom, the economic freedom of Germany is in the 24th place in the world in 2019. According to this index, Germany has received 73.5 points that is 0.7 points less than in the previous year. The reason of this decrease are the indicators of monetary freedom and business freedom, however, the economic freedom of Germany is still in the 14th place among 44 European region countries and its total economic assessment is higher than the average index of the nearest region or that of the world’s countries. The business and investment freedom in Germany is still strong – from the long-term perspective, Germany has good environment for promoting healthy competition, as well as for the development of business in general, which is facilitated by openness to global trade, excellent system for the protection of property rights, as well as foreseeable national policy for the business and economical development. Present governmental coalition of Germany envisages insignificant release of fiscal policy by means of state investments into the maintenance and development of infrastructure, as well as by means of investments into the digital technologies. The resolution of the present government also envisages increasing the support for the child-care, as well as decreasing the personal income tax. The expenditure of the German government for the subsidies also has reached historically the highest indicators.
Outside factors play a big role
And the commenced national policy has an important reason. Last year, in the third quarter, the economy of Germany experienced recession and since then it tries to find a strong basis in order not to let the economical recession to continue. At present the growth of German economy, as the largest European economy, is anticipated to have a plus, although, an insignificant one – only 0.5%, which is still a half in comparison to the earlier forecast. If the German economy will really increase by only such an amount this year, then it will be the slowest growth since 2013, when not only Germany, but all Euro-zone struggled against the consequences caused by global financial crisis. The forecast of future economic growth is cautious, and they should be, because the International Monetary Fund (IMF) also points out that this year will present the decrease of the rate of global economic growth, which will affect around 70% of countries. Both this and other factors make Germany to be cautious when forecasting its growth, irrespective of the existing strong domestic demand and high level of employment. Germany, as a significant exporting country within the global context is influenced under the protectionism policy of USA economy. This especially concerns trade with China – the German manufacturing industry enters the phase of regress, which is reinforced by changes regarding the amount of harmful emissions imposed on German automotive sector.
Economy of Germany will bear trade and tariff war consequences
President of the United States Donald Trump’s tactics "America first" is a considerable threat to the economies of European countries. Earlier Trump had expressed an opinion that he considers introducing new tariffs in relation to the goods manufactured in the European Union and imported to the USA, and in relation to the services that, in total, constitute approximately 10 billion euro. The European Union has replied that the calculations performed by the USA are a bit exaggerated, however, it does not change the essence of the issue. If the USA will introduce new tariffs of import duties, there might be expected the adequate reaction from the European Union, which will affect the volume of reciprocal trade and demand, because the consumers will directly feel the final price of goods – they will have to cover the increase of tariffs. The president of the United States also reserves an opportunity to increase the tariffs of import duties for the vehicles manufactured in Europe. This, of course, would directly affect Germany as the largest manufacturer of vehicles in Europe. This is an assumption yet, but it does not mean that it will not already influence the indicators of the economic growth of Germany, as well as those of all European Union. Words and resolutions are often as dangerous as the actions taken, and this is proved also by Purchasing Power Management Index that measures the industrial activity. In Germany this index in the previous month decreased down to the indicator of 44.5 points, which is already the fourth month, when the indicator is under the level of 50 points. This signals for the slowdown of economic rate, because, although the German sector of services supply experiences an increase, we should keep in mind that manufacturing industry is the sector that forms the grounds for the German economy, and it has entered the phase of regress now. It is partially related also to Brexit, where there is still uncertainty prevailing in relation to Britain’s withdrawal from the European Union and to the type of withdrawal. Therefore the manufacturers are also cautious, when planning their sales and production volumes. Having observed the domestic process of Germany, it is possible to notice temporary obstacles for the economic growth. Not only new emission standards for the German automotive industry participants, but also climate peculiarities have facilitated temporary decrease of economy. The most significant inland waterway of Germany is the Rhine that earlier had experienced the fall of water level due to drought. The river is a significant inland waterway for the German industry – it flows through the main manufacturing canters of Germany. The interruptions related to the use of this way were an encumbrance that made to find new ways for the movement of goods and components in order to ensure the continuity of industry.
Germany is not an exception from economic slow down
There is no doubt that the economy of Germany faces a challenge now. In the previous year the gross domestic product of Germany decreased in the third quarter by 0.2% and it did not reached its previous level even at the beginning of this year. But we cannot say that Germany experienced economic recession, at least according to its general meaning that defines economic recession as the economic recession during two consecutive quarters. The decrease of economic rate should rather viewed not only within the framework of Germany as one country, but within the global context, where the most important is disagreement regarding trade and tariffs, primary, between USA and China, and also the European Union. Within this context it is important to remember that Germany still has a stable and healthy employment market, where the unemployment constitutes only 3.1% - it is, by the way, one of the lowest indicators in the world. Among the richest countries of the world, only the Czech Republic, Iceland, as well as Japan have a lower unemployment indicator. And, in the case of Germany, this indicator also decreases, irrespective of the poor gross domestic product indicator.
Norman Logistics Sp.zo.o. is an international logistics company based in Poland since 2016, starting from 2019, Norman Logistics main office is based in Dortmund, Germany and is known as Norman Logistics GmbH. This company operates in Europe and also in many other major logistics centers in the world. The core business is a cargo brokerage, mainly marine cargo. Norman Logistics customers is significant EU companies which his production transport throughout marine cargo. And service providers is medium or large shipping companies. The mission of Norman Logistics is convenient logistics and one point service for the same price, individual and best quality approach.
Author: Rolands Petersons, member of the board of Norman Logistics Sp.zo.o.