German economy sees signs of recession

Rising energy prices and expenses have driven Germany's economy to the brink of recession, and the engine of Europe losing its economic momentum means more uncertainties for the continent's economy.

With energy prices through the roof, inflation in Germany could exceed 10 percent this year with the economy heading into recession, said the country's central bank Bundesbank in a report on Monday.

"There are increasing signs of a recession of the German economy in the sense of a clear, broad-based and prolonged decline in economic output," the monthly report said.

The institution's researchers expect the German economy to shrink markedly in the fourth quarter of this year and the first quarter of next year.

High inflation has been the main driver of the economic downturn. The surging energy prices are weighing on the country's energy-intensive industries, eroding private consumption and affecting service providers, the report said.

Chen Fengying, senior researcher on the global economy at the China Institutes of Contemporary International Relations, said Germany's economy has been hit more severely by the impact of the Russia-Ukraine conflict than some other European countries, as it has a heavier energy reliance on Russia.

"Russia, which accounts for more than 50 percent of Germany's imports of natural gas, suspended its supply to Europe via the Nord Stream 1 pipeline recently," she said. "The Nord Stream 2, which Germany has invested a lot into ... has been suspended. Thus, Germany's energy prices have already seen a sharp increase, and the situation would be worse as winter is on the way."

Energy shortage

To ease the energy shortage, Germany has restored the use of coal-fired power plants and is keeping the option of reactivating two nuclear power plants that were scheduled to be shut down this year.

This comes after Germany recorded its first foreign trade deficit in May in more than three decades, pointing to structural challenges and a grim economic outlook.

"As the engine of European economic development, Germany's weakening growth is bound to drag the whole European economy down," Chen said. She added that in the earlier European debt crisis, Germany's economy was still robust and became a stabilizer for the eurozone. But this time, Europe could be on the brink of recession.

According to Eurostat, inflation in the 19-nation eurozone hit a record of 9.1 percent in August, with food and energy prices continuing to soar. To reduce inflation in the eurozone, the European Central Bank has already increased its key interest rates twice this year, with further hikes likely.

Zheng Chunrong, head of the Germany Research Institute at Tongji University in Shanghai, said the COVID-19 pandemic has damaged the global economy and supply chain, and Germany's export-oriented economy has been greatly affected by the global economic environment. The economic recovery through green and digital transformation is much slower than expected, he said.

"Germany has participated in the sanctions on Russia, which has caused damage to its own economy, especially the energy supply," he said, adding that sharp increases in rising energy prices will push up costs of German companies and weaken their competitiveness.

"There are discussions in Germany that the country may fall into economic recession, which is possible," he said.

Thousands of people gathered on Wednesday in the Belgian capital Brussels for "a national day of action" to protest against skyrocketing electricity, natural gas and food prices. A Belgian media poll this week showed that 64 percent of people questioned are concerned that they might not be able to afford their electricity and gas bills, which have more than doubled over the last year.

Agencies contributed to this story.