In the 1950s, the German economy grew rapidly. Post-war reconstruction made this possible. Today, the second economic miracle is nowhere in sight.
Above all, the early boom years of the young Federal Republic after World War II propelled the German economy forward. This ensures overall positive statistics: Since 1950, the German economy has grown by an average of 3.1% per year. But in the 21st century, growth in economic output has been much lower than in the 50 years preceding the millennium. This has increased fears of a recession.
There are many reasons for this: fewer people working in Germany, more geopolitical conflicts, sharply rising energy and food prices, necessary and expensive climate protection, and the attraction of subsidies and tax breaks to U.S. companies force. Nonetheless, Chancellor Olaf Schulz recently spoke of the possibility of a new economic miracle. The imminent decarbonisation will require substantial investment to boost the economy. A realistic scenario?
“Unfortunately, this miracle will not happen”
Current data speaks a different language: industrial production recently fell by 3.4%, and the ifo business climate index fell again for the first time after six increases. Germany is currently in recession, albeit a small one. The government itself expects economic growth of 0.4% – far from an economic miracle. Even economists don’t believe the new economic miracle, 4% to 6% economic growth, is realistic for the foreseeable future.
Clemens Fuest, director of the ifo Institute, said in March: “Unfortunately, due to the continuous rise in energy prices and the various burdens caused by foreign trade frictions, as well as the reduction of the workforce, this miracle will not happen, but because of more fundamental reasons. reasons.” In a guest post for “Handelsblatt”. If the energy system is converted in a high-investment way to do the same thing as before, only with less CO2 emissions, resources will be used “to a considerable extent”.
These will no longer be available to produce other goods. “If there is enough free production capacity to make this switch without losing other activities, that won’t be a problem,” Fuest continued. However, given the labor shortage, this is not the case.
Politicians cannot create a second economic miracle, but they certainly have a chance to contribute to preventing a recession.
new economic miracle is “bullshit”
Furthermore, according to the economist Fuest, these investments will not create any additional capacity but will only replace existing capacity. They hardly create any additional growth potential. “So the economic miracle has been canceled,” said the Ifo president. Prosperity, as measured by consumption of goods and services, is more likely to decline. His conclusion: “Politicians cannot create a second economic miracle, but they certainly have a chance to contribute to preventing a recession.”
Fuest isn’t alone: ”Impractical” and “bullshit,” say other economists. In the sense of economic history, it is impossible for any developed and wealthy country to experience a second economic miracle. “It doesn’t have to be,” it said. Germany can certainly benefit economically from decarbonisation and climate protection. But when resources are being redeployed, resources are lacking elsewhere. It is now important that Germany not give up its advantages in specialization but use them for new technologies and developments.
But how did the miracle happen that year? Especially the first 20 years after World War II was a period of economic prosperity. This is the longest uninterrupted boom phase. The economy is growing at an annual rate of 12.1% (1955). National reconstruction, industrial revitalization, the Marshall Plan and the introduction of a social market economy stimulated the economy above average. There was even a shortage of workers in the late 1950s. Guest workers make up for this deficiency. In 1964 it was one million.
economic miracle roast, travel, vw beetle
Prosperity finally manifested itself: German-made machines, factories and cars were sold all over the world, bringing prosperity. “Prosperity for everyone” was the slogan of the time, coined by then chancellor Ludwig Erhard – everyone who achieved something should be able to afford it. Many Germans did just that: the need for hearty food, coffee and butter. There are Sunday roasts and more.
The refrigerator, TV and washing machine were moved into the newly built house. Hit songs like “Follow me to Italy for a while” blared on the new radio, whetting the desire to travel. But one thing in particular became a symbol of the era: the Volkswagen Beetle. Already in 1955, the millionth vehicle rolled off the assembly line in Wolfsburg. Social security and full employment ensured a new quality of life.
Three of seven recessions in the past 20 years
But 1967, the first of seven recessions, ended the postwar economic miracle. However, the recession after the turn of the millennium was even more severe: The German economy contracted by 5.7% in price-adjusted terms in 2009 due to the financial market crisis. The coronavirus pandemic has caused the second-worst recession since the war: Economic output plunged 3.7% in 2020.
Three of the seven stages of decline in economic strength have declined over the past 20 years: the economy declined by 0.2% and 0.7% in 2002 and 2003, respectively. The high inflation phases of 1973/74, 1981 and 1992 were also precursors to recession the following year.
Economic growth has slowed since then turn of the century
However, during the past two decades, economic development has been more constrained than in the post-war years. From 2000 to 2020, the balance sheet shows an average growth of 1.0%. However, between 1950 and 1970 it still grew by an average of 6.4% per year. By the late 1960s, industry contributed more than half of total value added. Today, the service sector dominates, contributing more than 70 percent to economic development.
In the first quarter of this year, the German economy shrank by 0.3%. A second consecutive decline is called a technical recession. This is the exact opposite of an economic miracle.