Tag: Germany

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Analysis

Bottleneck Recession in Germany: when will the situation improve?

Introduction

It is no surprise that the COVID-19 pandemic has damaged many of the world’s biggest economies. Last year in Germany, however, economists started predicting something called a “bottleneck recession”. Many of the materials that German firms need for production of goods are in short supply, hence harming the supply chain of the economy. But when will the German economy bounce back? And what will be the consequences of such a recession?

What are supply bottlenecks?

One of the most important issues to consider here are supply bottlenecks. A simple analogy for a ‘bottleneck’ would be a machine that is not working efficiently, and hence a long waiting period appears until the final result is delivered. 

In general, this occurs when price increases (inflation) result in an increase in the price of wages as well as raw materials. This causes a decrease in aggregate supply (amount of total production) of an economy. And because the demand for goods does not change (meaning people still want the same amount of goods as before), firms have to increase prices of the goods. The effect is that the increased cost of production is passed onto the consumers by firms.

Recent developments

Global supply chain bottlenecks have been one of the biggest problems in 2021 for many countries. One of the most affected economies was Germany because exports of cars, machine tools and other goods make up approximately half of its economic output. In the US, economic output depends on only 12% of  these types of exports. This sort of dependence on manufacturing and trade makes countries like Germany more susceptible to issues in the supply chain. 

Put simply, if factories do not have the necessary raw materials for production of goods, their economic output and amount of exports will decrease and hence harm the economy. 

It should be mentioned that economic output may have increased in November of 2021, but it also decreased by that same amount in December 2021, hence canceling out any growth seen in the German economy. And with the current Omicron outbreak, it is unlikely the situation will improve anytime soon. Production cuts, staff shortages and restrictions are all results of rising infection rates. Combine this with increasing costs of energy and the country’s going into the aforementioned bottleneck recession. 
However, the future isn’t all uncertain for Germany’s economy. Many think spring will “mark a resumption in the pandemic rebound”. It is expected that “energy prices [will be] digested and supply-chain problems [may be] eased by then” which would lead to growth in the second and third quarters of 2022.

Impacts

Germany already faced consequences of the supply chain bottleneck in 2021 with its car sales rapidly shrinking and “Volkswagen AG deliveries [dropping] to the lowest in a decade, despite robust orders” 

4.1% was the earlier estimate of growth in Germany in 2022, which has now been lessened to 3.6%, mainly because tensions between Russia and Ukraine may result in augmented energy prices, even more so than beforehand. 

All of this was and will be the result of the bottleneck recession in Germany. However, such bottleneck issues in many economies can lead to “corrective behavioral changes over time”. Instead of focusing on efficiency, many countries that did go through supply chain bottlenecks this past year, will hopefully focus on making their economies more resilient as well, to avoid such setbacks in the future.

Conclusion

Today, Germany’s economy is still struggling because of supply shortages, with economic growth declining and the inflation rate increasing in 2021. But there is much hope for the next few years. Germany’s economy is expected to pick back up in the spring of 2022 as infection rates will hopefully decrease and make way for the gains that will likely take place in 2023.

Sources

Deutsche Welle. “Germany’s Bundesbank Lowers 2022 Economic Growth Forecast | DW | 17.12.2021.” DW.COM, 17 Dec. 2021, http://www.dw.com/en/germanys-bundesbank-lowers-2022-economic-growth-forecast/a-60156000.

Ewing, Jack. “Fears of a ‘Bottleneck Recession’: How Shortages Are Hurting Germany.” The New York Times, 5 Oct. 2021, http://www.nytimes.com/2021/10/05/world/fears-of-a-bottleneck-recession-how-shortages-are-hurting-germany.html.

Kenton, Will. “Cost-Push Inflation.” Investopedia, 30 Sept. 2020, http://www.investopedia.com/terms/c/costpushinflation.asp#:~:text=Cost%2Dpush%20inflation%20occurs%20when. Accessed 9 Feb. 2022.

Randow, Jana. “Bloomberg – Are You a Robot?” Www.bloomberg.com, 14 Jan. 2022, http://www.bloomberg.com/news/articles/2022-01-14/german-economy-heads-for-recession-after-shrinking-last-quarter. Accessed 9 Feb. 2022.

Rees, Daniel, and Phurichai Rungcharoenkitkul. BIS Bulletin No 48 Bottlenecks: Causes and Macroeconomic Implications. 2021.

Weber, Alexander. “Omicron, Supply Shortages Risk Pushing Germany into Recession.” Www.aljazeera.com, 28 Jan. 2022, http://www.aljazeera.com/economy/2022/1/28/omicron-supply-shortages-risk-pushing-germany-into-recession. Accessed 9 Feb. 2022.

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Weekly Summaries

22nd of November – 28th of November

Germany’s new government

Two months after elections took place at the end of September, the German parties Social Democrats, Greens, and Free Democrats announced last week that they have concluded their coalition talks. The leader of the Social Democrats party, Olaf Scholz, is expected to take over as chancellor from Angela Merkel. This means that Germany may finally have a new government. Some policies included in the new deal are raising the minimum wage to 12€, building 400,000 new apartments to fight the housing crisis, legalizing the sale of cannabis, and new plans to phase out the use of coal by 2030.

Other News

  • To help battle the skyrocketing oil prices worldwide, Britain, the U.S., China, India, Japan, and Korea have decided to release tens of millions of barrels of crude oil from their storage, according to the New York Times
  • A bus caught fire and crashed in Bulgaria, killing at least 45 people
  • A new variant of COVID-19 called Omicron that was first detected in South Africa has started to spread
  • 52 people were killed due to a gas buildup and explosion in a Siberian coal mine last week
  • There were clashes between the police and demonstrators in Honiara, the capital city of the Solomon Islands. The protestors demanded that the prime minister resign.
  • The cyberwar between Iran and Israel has reached new heights
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Weekly Summaries

15th of November – 22nd of November

Tensions at the Poland-Belarus border

Thousands of migrants were trapped at the border between Belarus and Poland for weeks. Poland, a member of the European Union, refused to open the border. Now, an increasing number of migrants have decided to seek asylum in Belarus instead. This could cause many problems for Belarus, a country that has few jobs and other opportunities. Towards the end of the week, Belarusian authorities then cleared the camps at the border and moved the migrants to a warehouse instead. The question of what will happen to the migrants now remains unanswered.

Other News

  • Sudan’s prime minister, Abdalla Hamdok, was reinstated on Sunday after being in house arrest for four weeks
  • A new Portuguese law is considered revolutionary in its efforts to regulate remote work conditions. The law effectively prevents employers from contacting their employees outside of working hours and from monitoring their work.
  • President Biden of the U.S. and President Xi of China met virtually in a three-hour long summit to keep “communication lines open”
  • Germany “suspended approval of the Nord Stream 2 pipeline,” according to the New York Times. The move cause gas prices in Europe to rapidly increase
  • An explosion in Kampala, the capital city of Uganda, killed at least three civilians. The explosion was later described as an “extremist attack” with three suicide bombers also dying. 
  • A self-portrait of Frida Kahlo sold for $34.9 million last week, setting a new record for the most expensive artwork by a Latin American artist at the auction Sotheby’s
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News

The G20 Summit in Rome, Italy

Who attended?

These past few days, the political leaders of the G20 member countries met in Rome to discuss a handful of issues. Some of the politicians who were present are: 

  • Alberto Fernandez (Argentina)
  • Scott Morrison (Australia)
  • Jair Bolsonaro (Brazil)
  • Justin Trudeau (Canada)
  • Xi Jinping (China)
  • Emmanuel Macron (France)
  • Angela Merkel (Germany)
  • Mario Draghi (Italy)
  • Narendra Modi (India)
  • Joko Widodo (Indonesia)
  • Manuel Lopez Obrador (Mexico)
  • Moon Jae-in (South Korea)
  • Vladimir Putin (Russia)
  • Salman bin Abdulaziz Al Saud (Saudi Arabia)
  • Cyril Ramaphosa (South Africa)
  • Recep Tayyip Erdogan (Turkey)
  • Boris Johnson (United Kingdom)
  • Joe Biden (United States)

Joining these political leaders was the President of the European Commission of the European Union, Ursula von der Leyen, and President of the Council of the European Union, Charles Michel. Antonio Guterres, general director of OMS, specifically discussed financial issues relating to the health of the world population.

What was discussed?

So, first and foremost I want to say my thoughts on the possible solutions that will be discussed in the hopes of resolving some of the world’s current Economics problems.

  1. The European Union will invest in the eco-transaction for social enterprises, which are present in nations like Germany and Netherlands, but not in Turkey or in the United States at the moment. Mario Draghi was noted as saying that the Turkish president did not consider the political circular economy. Therefore, there will be no equality in the sense of financial economics in the future, and as a result there will be more discrepancies in terms of environmental sensibility. 
  2. The markets will be more open to Artificial Intelligence. This is especially important as AI is now considered fundamental for new inventions and innovations. 
  3. The United States will invest more on the prototype of financial democracy. In general, it has been noticed that Biden’s government is more concerned with solving population problems than Trump’s government. 
  4. China will be the first world power nation. Compared with all other international markets, China is one of the best markets for social capital that Chinese companies can invest with and also for AI (Artificial Intelligence).

Conclusion

In general, I believe there will be considerable investments in innovation, but I also think there will be areas that will see more progress than others.

I believe the central areas will be capital growth, new health solutions and eco transactions, with a greater focus on the rights of employees. Meanwhile , I think that the semi-peripheral areas will be capital growth, new health solutions but also more consideration of people’s rights on goods and services and on working issues of industries. In my opinion, the periferica areas will be debts and stagflation. It is also possible that there will be problems about having credits as paying back debts may become difficult to do. However, also inflation and financial stagnation are likely to lead to many problems, meaning that no investments will be made into sustainable finance. 

Let’s hope there will be a graduating consideration of nations that are in critical situations, like Perù, Mexico, Spain, and many African countries.

Sources

  1. https://www.consilium.europa.eu/en/
  2. di Taranto, Giuseppe. “The History of Economics.” (2012)
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Weekly Summaries

20th of September – 26th of September

Elections in Germany

In Germany, elections took place this past Sunday. In Berlin, the marathon took place on the same day, which led to many disruptions and some people only being able to vote after the first results had already been published. The Social Democrats (SPD) ended up winning the election, winning 25.7% of the votes, earning just 1.6% more than the Christian Democratic Union (CDU), which is Angela Merkel’s party. Because no party earned more than 50% of the votes, they have to form a coalition. At the moment, there are three possibilities, but the negotiation talks could take months. It is also still unclear who will become Chancellor now that Angela Merkel’s 16-year long chancellorship has ended.

Elections in Canada

After the current prime minister Trudeau called elections early this summer in the hopes of gaining a majority, the people decided last week that he should stay in power. Overall, Trudeau’s party the Liberals won 158 seats, 12 seats short of the 170 seats required to have a majority. The Conservatives, meanwhile, won 119 seats. However, voter turnout was the lowest in more than a decade, with just 59% of Canadians who are eligible to vote giving their poll.

Other News

  • Meng Wanzhou, the executive of Huawei, has been released and returned to China last week
  • Thousands of residents of the island La Palma had to be evacuated by Spanish authorities last week because a volcano spewed lava and smoke. The eruption was later called the “most powerful eruption in half a century,” according to the New York Times
  • The U.S. lifted its travel ban on foreign travelers who have been fully vaccinated from 33 countries, which include E.U. countries, China, Iran, South Africa, Brazil and India
  • Same-sex marriages are now legal in Switzerland after many people voted for the legalisation in the vote
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Weekly Summaries

12th of July – 18th of July

Protests in Cuba

Last week, Cuba saw some of the biggest protests in decades. Thousands of Cubans went to the streets to protest against power outages and food and medicine shortages, which were caused by the country’s economic crisis. The New York Times describes scenes in which people have to wait for hours to buy food. Although Cuba had already been suffering from an economic crisis before the pandemic hit, lockdowns have meant that the valuable income from the tourism industry has also been cut.

Floods in Western Europe

Violent storms caused floods in Western Europe last week. So far, the number of deaths is over 180 but more than a thousand people still remain missing. Germany and Belgium were hit the worst but Switzerland and the Netherlands have also been affected.

Other News

  • The Death Valley in California reached a temperature of 54 degrees Celsius (130 degrees Fahrenheit) last weekend. This is one of the highest temperatures to ever be recorded.
  • After protests in South Africa connected to the arrest of the former president Jacob Zuma turned violent, the South African military has been deployed by the government. Alone 117 people died last week due to looting and vandalism. 
  • According to the New York Times more than 77% of New Mexico is “in severe drought”.
  • The designated prime minister of Lebanon, Saad Hariri, has resigned after months of trying to form a new government.

Categories
News

The G7 Summit in Cornwall

What is the G7?

The G7 is a political establishment, founded in 1975, that addresses current and potential future challenges that can affect the growth of the global economy, including the impacts of fluctuating oil prices and of emerging markets. The G7 is made up of some of the wealthiest economies across the world — the US, the UK, Canada, France, Germany, Italy, and Japan (China is not a member of the G7). The organisation is not an official, formal entity and therefore has no legislative or authoritative power to enforce policies or laws around the world. However, due to the powerful nature of the countries involved, policies can be introduced within said countries, helping to resolve global issues.

What is the purpose of the G7? 

The intergovernmental organisation meets periodically to assess economic and monetary issues that have developed throughout the world between each summit. They discuss and sometimes act in order to assist in resolving global issues, particularly those that concern the global economy.  Their efforts have allowed the organisation to launch initiatives, which fund issues and relieve crises, including several aimed at relieving debt within developing nations. For example, the establishment provided $300 million in 1997 to help construct the containment of the reactor meltdown at Chernobyl, following the nuclear disaster. 

What did they discuss in Cornwall last week? 

As expected, the main topic of conversation was resolving the current global crisis, COVID-19. The leaders within the establishment debated the importance of a stronger global health system and reviewed a potential plan of action which could reduce the global health inequality that could protect us from future pandemics.  Their agenda further included discussion on actions taken towards climate change, e.g. the unsuccessful Paris Agreement of 2015, and trade agreements. This was a big topic for Britain in particular, since talks regarding Brexit began in 2016 when Britain decided to leave the European Union.

What were the outcomes of the meeting? 

The meeting had three major outcomes: “A Billion doses of COVID-19 vaccine (1)”, “no more coal (2) ”, and “tech giants and tax havens targeted (3)”.

  1.  The leaders at the conference pledged to deliver over 870 million vaccine doses to the developing world, on top of the 250 million already promised by the US and the 100 million from the UK. This action will not only allow the HIC’s to recover from the pandemic but allow LIC’s to recover, also. This will have a rather large impact as the lower-income countries are more at risk of an unrecoverable economic depression than higher-income countries. 
  2. There was a unanimous agreement in which the G7 leaders pledged to phase out coal-fired power generation at home and reduce/end funding for new coal-burning power plants in the developing world. Furthermore, the leaders committed to offering developing nations $2.8bn to help them switch to cleaner fuels. These plans will not only help reduce carbon emissions but will consequently reduce climate change. A large issue within climate change is that developing countries do not have funding to provide renewable sources of energy. Therefore, this initiative is of great importance as it will allow countries to take a global stance against global warming.
  3. The summit agreed to take steps towards dissuading MNC’s (multinational co-operations) from shifting profits to low tax-havens. The leaders signed up to levy a minimum 15% corporate tax rate. This will help boost economies especially following the pandemic, which has caused severe economic instability globally. Furthermore, the leaders have also moved to help protect the global financial system from the impact of climate change by agreeing on rules which require companies and financial institutions to disclose the extent to which their business is exposed to climate change risks.

Sources

  1. https://www.weforum.org/agenda/2021/06/g7-summit-covid19-tax-environment/
  2. https://www.investopedia.com/terms/g/g7.asp

Categories
Weekly Summaries

3rd of May – 9th of May

Unrest in Israel

Last week, a stampede at a festival for the ultra-Orthodox Jews in Israel left 45 people dead. Meanwhile the Israeli prime minister Benjamin Netanyahu stated that he “would be willing to hand over leadership for one year” to Naftali Bennett, a right-wing rival, according to the New York Times. This statement can be seen as a desperate attempt by Prime Minister Netanyahu to form a government. Mr. Netanyahu may have been in office for the past 12 years, but he is currently facing trial on corruption charges and Israel has seen four elections in just two years. However, Naftali Bennett is uncertain about how sincere the Prime Minister is about his proposal, especially because the coalition would still be two seats short of the required number to form a majority government. Soon after, Mr. Netanyahu failed to meet the deadline set for assembling a new government, which was Tuesday night. Yair Lapid, who is politically in the center, now has 28 days to form a coalition.

Other News

  • A suicide bomber blew up a truck in Logar Province, Afghanistan. 
  • German prosecutors were able to break up “one of the largest child pornography sites operating on the darknet,” according to the New York Times.
  • The New York Times reported a subway crash in Mexico City last week, in which a subway overpass collapsed, has killed at least 24 people and wounded 70 more.
Categories
Analysis

Nord Stream 2 – A step in the wrong direction

Nord Stream 2 is a gas pipeline, that carries non-renewable natural gas into the European Union, from Vyborg, Russia to Lubmin, Germany. According to Nord Stream AG (the operator of the project), the overall costs of the construction of the 764 mile long pipeline are estimated to total around 9.5 billion euros (which is enough money to fund the construction of over 6000, 800kW wind turbines, in Britain). The gas that the pipeline is to carry, lies in northern Russia’s Yamal Peninsula, which holds nearly 5 trillion cubic meters of gas reserves, according to the Nord Stream 2 consortium. The aims of the transportation of the natural gas are to enhance the security of supply, to strengthen the internal market, and to relieve pressure on other sources within the EU that previously supplied all the non-renewable resources since the EU’s domestic gas production is in rapid decline. However, it is debatable as to whether relying on other sources of natural gas is the best way forward for our economies and for our planet. Currently, the EU has committed to finance projects worth 168.7 billion euros, of which 21%  will go to measures to address climate change. Why spend this much money on reversing the effects of climate change, if Nord Stream 2 is to be built? 

Over the past decade, we have seen a drastic increase in the demand for the use of renewable resources, in response to the ever-increasing climate change issue. As we all know, climate change will not only affect the weather and temperature of our planet, but it will also hinder human life and activities in a variety of ways. A simple example of this would be the increase in global food insecurity and reducing crop productivity, which feeds our ever-growing population. Over time, farmers have adapted to the weather patterns, planting crops accordingly, however, climate change is altering temperature and rainfall patterns, potentially affecting which crops can be planted at which times throughout the course of the year. I believe that we struggle to understand that climate change can be positively impacted by the individual efforts of the human race, as many wrongly-believe that this global issue could, and should have been resolved by our governments, therefore deeming the global political system incompetent. While it is true that governments should increase the focus surrounding reversing climate change, individual countries and their citizens must cooperate, to reduce their overall carbon footprint; something that will be very difficult to do with the influx of natural gas delivered by Nord Stream 2.

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Weekly Summaries

18th of January – 24th of January

President Biden’s Inauguration

This past Wednesday was Trump’s last day in office. He became the first US President to leave the White House before his successor’s (Joe Biden) inauguration. Biden became the 46th President of the United States and Kamala Harris officially became the first woman and person of colour to take up the position of vice president. Since then, President Biden has already released a national pandemic response plan.

US accuses China of Genocide

The US State Department declared on Tuesday — former US President Trump’s last full day in office — that the Chinese government is committing genocide and crimes against humanity. There has long been criticism of China for suppressing Muslim minority groups, including Uyghurs, in the region of Xinjiang. US officials later said that they hope that other countries will follow in their footsteps.

Other News:

  • Armin Laschet was named the next leader of Angela Merkel’s CDU Party. Elections will take place in Germany in fall.
  • On Thursday morning two bombers wearing explosive vests killed at least 32 people in an attack at a busy market in central Baghdad, Iraq.