Germany - ‘Sick Man’ of Europe?

Is it time to be worried about Germany’s economy?

Key Points:

·  The initial term ‘sick man’ of Europe was used to describe the Ottoman Empire of the late 19th century. In the 1970’s, the slogan was revived in reference to the UK. Much to the discomfort of the German government, it has been revived once more in relation to the weakening economic conditions in Germany. 

·  Despite the perception of German economic strength, in reality, over recent years, the UK has actually grown faster than Germany (although Germany remains the 4th largest economy in the world).

·  While the UK economy is grinding out very modest rates of growth, Germany’s economy has been one veritable bumpy ride.  After two quarters of negative GDP (the usual definition of a recession), Germany’s 2nd quarter of 2023 was barely positive.

·  Even though business surveys are not always the best forward indicators, for an economy like Germany, they are still relevant. Despite the sharp fall in energy costs, German businesses are feeling anxious, and that suggests negative GDP growth may continue into Q3 2023.

·  Saying that, one should not rush to sell German equities. Like the UK, the German stock market is full of large global champions. Moreover, while German economic growth may be stagnating, other large economies in the Eurozone are experiencing robust growth. Assuming that this “sickness” does not turn contagious, there are still strong opportunities within the rest of the continent.