Germany’s Economic Downturn Causes Concern in France
Germany Financial Minister Olaf Scholz, Flickr.
As the world mulls over Brexit’s impact on the global economy, another major concern is developing fast - Germany’s economic downturn, which started to become prominent this past August. France is particularly concerned by this development, as Germany accounts for 15 percent of France’s imports and exports, while Britain accounts for a much lower 5.2 percent. As concerns grow, a senior official in the French Finance Ministry told Reuters, “we are more concerned about Germany than we are about Brexit. We’re a lot more exposed to Germany.” Another French finance ministry official stated that, “it’s important to take preventive action before it gets too late and not be reacting once a crisis has set in.
Amid the anxiety, French Finance Minister Bruno Le Maire, Germany Financial Minister Olaf Schulz, and German Economic Affairs Minister Peter Altmaier led a news conference addressing the troubles and how they plan to solve them. Le Maire said that the plan for reviving Germany’s economy involved a decrease in public spending accompanied by structural and policy reforms. He added that a timeframe for implementing the policies was not decided upon.
Germany, Europe’s largest economy, has been in critical condition for the past year. It barely avoided a recession in 2018, and concerns grew as it reported a 0.1 percent fall in GDP for the second quarter of 2019. If the nation’s GDP contracts again in the next quarter, it means that Germany will be experiencing a technical recession, and there have been many signs suggesting that Germany’s economy is only going to get worse.
Despite a 39-year low in unemployment rates, exports from Germany are falling. Germany’s manufacturing makes up 47 percent of its GDP, according to Andrew Kenningham, a senior economist at Capital Economics. A hit in manufacturing exports could prove to be devastating. According to statistics released by the Federal Statistics Office, Germany experienced an 8 percent drop in exports from the previous year, and manufacturing levels fell to a six-year low in June. Kenningham stated that this has to do with global economic events like Brexit and the trade war between the U.S. and China. Brexit is a particular concern, says Cunningham, as exports to the United Kingdom constitutes 2.5 percent of Germany’s GDP in 2018. He concluded that a no-deal Brexit would lead to a 0.25 percent decrease in Germany’s GDP annually.
In contrast, France’s economy is growing at a rate of 1.4 percent annually, more than double compared to Germany’s 0.6 percent, and seems to be holding fast despite Emmanuel Macron’s economic overhaul in response to the Yellow Vest Movement. France’s growing economy has been an anomaly in the midst of a declining eurozone economy, with INSEE official statistics agencies reporting a 102 confidence rating, and an expected average investment raise of 6 percent. France has also avoided being negatively affected by Brexit so far, and is actually benefiting from it. French exports to the U.K. hit a record high in March due to British firms stockpiling goods in case of a shortage. The head of France’s Central Bank, Francois Villeroy de Galhau, also said that around 50 financial institutions based in London were relocating to Paris amid concerns about Brexit, bringing around 200 jobs with them.
Despite France’s economic position, it is clearly concerned about Germany’s current bleak circumstances. The concern is being made clear by French attempts to collaborate with Germans to revive their economy, as a hit to Germany’s 15 percent stake in France’s trade could also trigger a French downturn. Only time will tell how the issue will develop.