Eurozone’s Economic Powerhouse in Trouble
Born out of the desire to bring Europeans together, the European Union rose as one of the key global economic models. The single market is the envy of the world – with over 500 million people occupying the region and acting as targets for goods and services of companies. Germany, the European economic powerhouse, has a huge account surplus and is responsible for the majority of the European exports.
For years, investors and traders interested in how the Euro area performed, looked first at Germany, and then at the overall data. There is a saying that if Germany sneezes, the Eurozone catches a cold. Especially in times of crisis.
Terrible Economic Data Out of Germany
Germany factory orders declined 15.6% in March, which is a record low. The number suggests global trade would further decline in April, considering the role of the German exports and their impact on the global trade of goods.
Industrial production was pushed lower especially due to the shutdown of German car factories. As factories were closed in the second half of March, they opened up gradually in April. However, the output declined with more than 90%.
The car industry is just an example illustrating the shape of the European’s strongest economy.
First, Germany is a rich country, it has the strongest economy in the region, but also a current account surplus. If needed, it has the capital to turn too, without impoverishing its population with new debt.
Other countries, especially in the South (e.g. Spain, Italy, Greece, Portugal), struggle to find the capital desperately needed these days when local economies are in lockdown mode.
Second, Germany was one of the countries that did not shutdown the entire economy during the pandemic. It allowed a few businesses to function, people to get out of house, and basic services remained open. Yet, the economy is on the brinks of collapse – we can only imagine the situation in the rest of the European countries.
One thing is for sure – this is no regular crisis and it obviously took the world by surprise. The dependence on Asia, especially China, forces countries to rethink their future strategy, as exports and imports will not reach the same levels for a long time.
The German economic situation indicates Europe faces a terrible economic crisis, and as Asia has begun to function again, Europe has a lot of work to catch up.