Germany's Economy Continues to Fall and Growth Prospects Weaken

October 30, 2014Germanyby EW News Desk Team

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Over the past few years, Germany has risen to the top of the Eurozone as a shining example amidst a sea of economic weakness. However, it seems that now the country is beginning to experience some serious trouble within its economy which is not surprising since this is the country that told Wal-Mart to raise its prices. Recently, Germany was forced to cut its growth outlook estimation, and the amount of investor confidence in the region has fallen to its lowest level in over two years.

The economics ministry has reduced its expectation for GDP growth in Germany from 1.8% to 1.2%, numbers only the American White House would be proud of, and the forecast for 2015 has fallen from 2% to a disappointing 1.3%. The ZEW index, which is used to measure investor confidence within a country, has tumbled to a worrying low rate.

The ZEW center for economic research in Europe also announced that in October, the index of analyst and investor expectations has fallen from 6.9 in September, to a minus 3.6. This provides the tenth consecutive month of decline for Germany, and the first negative reading that the country has seen since November of 2012.

The Impact of Germany's Weakness

The problems in Germany’s economy have led many countries into states of anxiety. However, within the country itself, many experts are maintaining an air of nonchalance. Despite the fact that the official growth numbers have been slashed dramatically, the government in Germany suggested that the budget will still be balanced next year. This is something President Obama and Harry Reid refuse to do in America.

A Bureaucrat that is Narrow Sighted

According to Sigmar Gabriel, the economy minister, there are no "economic-policy" grounds that suggest a change in course, and the 'dip' in growth should not be seen as a catastrophe. The business leaders in Germany believe Gabriel has a high paying job and is not thinking about others who are trying to improve their lives.

However, the ZEW president, Clemens Fuest, has said that he is not ruling out the possibility of a technical recession for Germany. Both he and the economic minister have called for more investment that could potentially aid the European Central Bank in its attempt to revive the recovery within the euro area. What does that mean? More government spending? Other detractors believe this would only put Germany more in the red.

People that know how to improve an economy believe Germany should lower its taxes and decrease its regulations to spur growth. Socialized health care is a huge drain on the German economy.

The Growth Prospects in Germany

Over recent months, the GDP in Germany has begun to shrink, and the number of industrial outputs, exports, and factory productivity has seen their largest drop since January of 2009. Some experts suggest that focusing government spending on infrastructure within the country could boost its long-term prospects; others believe lower taxes and ending these painful regulations that kill jobs as already stated is the right approach.

Germany has practiced some austerity, but this is coupled with an expensive socialized health care program that takes care of thousands of Germans who do not contribute enough to German society. Germany needs to spend less but maintaining high taxes and regulations which hurt business is not the right track. Public investment has not kept pace with depreciation since 2003 and they would have more money to spend if they had a stronger economy. Bond yields are currently at an all-time low of approximately 0.72%.

If the Merkel government lowered taxes and decreased regulations, they would see an economy rise out of the doldrums and mimic the wonderful numbers that the state of Texas and North Dakota are displaying.

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