German economy: Recession fears and record profits – how do they fit together?

In times of crisis, corporations make billions, there are tons of positive economic data and upbeat polls. Is the German economic situation not so desperate after all? Questions and answers.

The war in Ukraine, the energy crisis, record inflation are looming decline – the environment is not favorable. However, the German economy is still growing, and a number of corporations are making billions in profits. It sounds paradoxical, but there are explanations.

Advisory Committee federal government to discuss this Wednesday (November 9) when the 2022/2023 will be presented.

Economic growth Crisis – how does it work?

In the third quarter, the German economy surprised positively: instead of the decline in economic output expected by many economists, the gross domestic product (GDP) increased by 0.3 percent compared to the previous quarter. According to the initial assessment of the Federal Statistical Office, the growth was mainly driven by private consumption. Skipping Corona– The restrictions have boosted the hotel and restaurant business, and the event industry has picked up speed again.

What is the mood in the company?

“It’s a permanent collapse of an industrial site.” Deutschland announced,” Moritz Kuhn, a professor of economics at Bonn, recently tweeted. “But the data doesn’t reveal it.” He believes that sub-analysis, such as on Twitter and talk shows, is “very dangerous,” says Kuhn. asked. : “There are often rows of numbers placed next to each other, without context or point of reference.”

For example, a survey conducted by the Munich If Institute showed that companies are now much less concerned about their existence than they were during the Corona crisis. According to data published at the end of October, 7.5 percent see a threat to their existence. In June 2020, it was 21.8 percent. “Considering the significant economic slowdown, companies have proven to be very resilient,” concluded Ifo expert Klaus Wohlrabe.

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For example, rapidly rising natural gas prices and energy supply difficulties are becoming an increasing burden for German machine manufacturers. According to a survey published in September by the VDMA industry association, around 90 percent of companies have not had any production restrictions so far.

The German Association of Mechanical and Plant Engineering (VDMA) expects production to increase by one percent this year, based on total order books. According to the VDMA survey, three out of four companies expect nominal sales growth in 2022.

Why do some corporations make billions in the middle of a crisis?

“BP in the oil rush”, “Crisis? Not Deutsche Bank”, “Lufthansa expects a billion profit” – many companies are doing really well. British energy giant BP is taking part in high oil prices due to Russia’s attack on Ukraine. Deutsche Bank set a course for growth years ago by restructuring the company and is now also benefiting from rising interest rates. Due to the high demand for tickets and the highly profitable cargo business, confidence in Lufthansa, which has meanwhile been supported by billions of the state, is growing.

EY partner Mathieu Meyer is not surprised that many companies are on a record course: order books are full, consumer spending power is high after the coronavirus restrictions. “And that’s how companies manage to push price growth. The demand side is still quite strong,” says the management consultant.

It is likely that in 2023 declining purchasing power and rising interest rates will lead to a recession. “But I don’t expect a full-blown crisis from discussions with companies,” says Meyer.

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What role does the state play?

As during the Corona pandemic, Germany is spending billions to ease the burden on businesses and consumers. Chancellor Olaf Scholz (SPD) casually summed up the new so-called shield against high energy prices at the end of September: “You can say it’s a double failure.” Even a rich country like Germany can’t mitigate everything, but it is a stabilizing factor.

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