Germany heading for recession despite new relief plan, economists say

Germany, Europe’s biggest economy, is still heading for a recession, even with a new government plan to spend 65 billion euros to protect consumers and energy companies from rising inflation, economists say.

The latest package raises to 95 billion euros the resources devoted to fighting inflation since the beginning of the war in Ukraine in February. For comparison, the government spent 300 billion euros to support the economy in the two years of the pandemic.

“The third aid package does little to change the fact that Germany is set to enter recession in the autumn (northern hemisphere),” said Joerg Kraemer, chief economist at Commerzbank.

The German economy grew by the narrowest of margins in the second quarter, and the war in Ukraine, rising energy prices, the pandemic and supply disruptions are now pushing the country into a downturn that may have already started.

A survey published on Monday (5) showed that Germany’s service sector contracted for the second consecutive month in August, with domestic demand under pressure from rising inflation and faltering confidence.

Russia’s decision to stop pumping gas through the Nord Stream 1 pipeline adds to Germany’s woes, although German gas reserves reached 85% of capacity on Saturday and Chancellor Olaf Scholz has promised the country “will get through it.”