The well-oiled German economy has hit a brick wall

A look at Germany’s purchasing managers’ index (PMI) paints these concerns legibly on a graph. As on August 22, the PMI registered a value of 43.6, higher than the forecast which stood at 43. The PMI measures the activity level of purchasing managers in the manufacturing sector and thus can indicate the direction where an economy moves. A value above 50 would mean an expansion in the segment, and a value below 50 signifies a contraction. 

The German PMI value fell below 50 as early as January of this year, and has steadily declined ever since, save for a few weeks when the value nudged up a little month-over-month. It is interesting to note that the PMI forecasts had roughly remained more optimistic, considering the reality that ensued – all the way from January 2018, when the PMI value achieved a historic high of 63.3. 

The German GDP figures mirror the lackluster manufacturing performance, contracting by 0.1 percent in the second quarter of 2019, after a 0.4 percent increase in the first quarter of the year. The economic forecast for the year’s third quarter by Bundesbank, Germany’s central bank, shows that it expects the GDP to fall further by another 0.1 percent. However, the Bundesbank does not believe that the situation is dire enough at the moment for a fiscal stimulus. 

German Finance Minister Olaf Scholz is considering to remedy the situation by injecting €50 billion into the economy and steer clear of a potential recession – a figure he derived based on the impact of the 2008 financial crisis. “We have to be able to muster that and we can muster that,” he said when addressing the public in Berlin. “The biggest problem is uncertainty, including that caused by the Chinese-U.S. trade war.”

But behind the struggling economy is a systemic negligence within German infrastructure, with its famed autobahn, bridges, ports and airports suffering different levels of disregard. Der Spiegel, a German weekly, detailed the crippling concerns behind bolstering bridges across the country, pointing out that 12.4 percent of Germany’s bridges needed immediate attention. 

The situation is so bad that heatwaves – an annual occurrence in parts of Europe – have caused mortar on certain sections of the autobahn to crumble, causing inconvenience to commuters. The Deutsche Bahn, Germany’s railway system, is a pale shadow of its former self, severely hit by a lack of punctuality and quality standards. 

German Chancellor Angela Merkel acknowledged the fears of a recession, stating that her government will look to be proactive on the face of a severe downturn. Industry leaders and opposition parties are calling on the government to abandon its zero-deficit policy and look to borrow if the situation gets worse – an argument that Merkel’s government will consider if push comes to shove.