German Living Conditions Take a Dive Amid Ukraine Invasion, Economists Warn
The repercussions of Russia's invasion of Ukraine have led to a historic decline in German living standards, the most significant since World War II, according to a comprehensive evaluation. The energy crisis resulting from the conflict has also induced an economic contraction akin to the 2008 financial crisis.
Two former economic advisors to the German government have published a joint paper, emphasizing the severity of the economic crisis in what was once Europe's economic stronghold. They noted that 2022 witnessed the most significant decline in real wages in Germany since 1950.
The authors of the working paper, published by the Forum for a New Economy, cautioned that failing to shield German industry from the energy price surge could turn the 2020s into "a lost decade for Germany." This could further amplify the popularity of the populist far-right Alternative für Deutschland (AfD).
This unprecedented slump in German living standards coincides alarmingly with the rising popularity of the far-right, according to Isabella Weber, associate professor of economics at the University of Massachusetts. Weber has previously served on a high-level expert commission tasked by the German government to design an energy price brake for firms and households in 2022.
The study's co-author, Prof. Tom Krebs, was a senior advisor at the finance ministry under current German Chancellor Olaf Scholz. Their research underscores the ongoing economic struggle of Europe's largest economy, following the full-scale invasion of Ukraine in February 2022.
The International Monetary Fund's growth forecast for Germany in 2024 and 2025 is lower than any other comparable advanced economy, with the exception of Argentina. The German economy contracted by 0.3% in the final quarter of 2023 and is anticipated to shrink further in the first quarter of 2024, potentially indicating a technical recession.
The authors pointed out that two distinct increases in support for the AfD in the summers of 2022 and 2023 coincided with periods of uncertainty in the German government about how to handle the impact of energy price shocks on living standards.
News Agencies