Germany's Crisis is Spreading to the Rest of the World

Germany just admitted that its economy

contracted for the second year in a row

in 2024 in 2025 is not looking any

better putting all of Europe in a huge

bind defying all predictions for a

recovery instead Germany continued on

its incredibly odd and irregular path

right up until the end of the year and

Germany is only the clearest example of

this same peculiar pattern that we saw

all over the world it doesn't look like

a recession but that's just what makes

it so much worse it represents a world

where growth legit growth just stopped

happening all of our economy and

potential got artificially pulled

forward into

2021 then 2022 happened and everything

changed the Worldwide Recovery just

stopped again Germany's weird GDP is

merely the most visibly striking example

whatever anyone wishes to call it the

symptoms of it are visible enough every

everywhere else too the German

government in 6 weeks will be

unceremoniously thrown out of office

same as the UK and the United States

already Canada's going to see the same

thing this year France and on and on and

on this political instability has arisen

from the seemingly inexplicable economic

pattern since it doesn't follow the

traditional recession mold politicians

at best have been lulled into

complacency about it and at worst using

that strangeness to try try to discredit

anyone who brings up the fact something

big is wrong in the world economy if it

doesn't look like any past recession

well they think it can't be one well

maybe it isn't one but that might

actually make it worse what happens to

the world where all the growth was used

up three and four years ago and was used

in the worst ways possible that's what

interest rates are telling us or copper

to Gold that's equal to 2020 or 2009

levels what we do know for certain is

this Germany's GDP shows that the

economy stopped recovering three years

ago and there's no sign it's going to

restart but that pattern has been

repeated all over the world especially

in places like global trade and even the

US Labor Market well what the German

government said was as Bloomberg

reported Germany's economy shrank for a

second consecutive year in 20124 and is

unlikely to grow much in 2025 that's

putting it kindly laying be the

challenge for the country's new

government once snap elections are held

in February gross domestic product fell

by 210 of a perc after dropping 310 of a

percent in 2023 that's what the

statistics office said that last week

it's only the second time since 1950

that output is contracted for two years

in a row but they have to throw in there

a rare bright spot is European Central

Bank monetary policy with officials in

Frankfurt set to continue lowering

interest rates after cutting them four

times in 2024 and no lower interest

rates are a reflection of these economic

conditions markets lead rates go lower

in response to those conditions or

actually forecasting those conditions

and eventually central banks follow once

they realize what's really happening

because central banks like Central

governments had been forecasting Germany

and all of Europe would recover in 2024

and that didn't happen and the rate cuts

the ECB implemented last year didn't

change that fact certainly not for

Germany nor the rest of Europe what's

happening is that growth simply stopped

leaving German GDP and all these

macroeconomic statistics we see around

the rest of the world in very rough

shape but it doesn't look like a

recession therefore it creates enormous

confusion among policy makers officials

the public and everyone else in

between so the German government said

GDP contracted by 210% in 2024 which is

similar to the amount in

2023 and even though no one has

officially declared a recession we don't

really need them to we have this odd

predicament where GDP has contracted two

straight years and no one will say it's

a recession largely because G GDP on a

quarterly basis has gone back and forth

it is one of the weirdest things you'll

ever see in any macroeconomic account if

the advanced estimates hold and there'll

be revisions so these might change but

going back to the second quarter of 2022

Germany's GDP has been has alternated

between falling and rising and

rebounding 11 quarters in a row one

quarter down the next one up the next

one down the next one up for over two

and a half years so you don't even get

the technical recession there where you

don't have two straight quarters of

negative GDP and there really is no such

thing as a technical recession but you

don't get that shorthand either which

only adds to the problems the confusion

what do we call this thing is it a

recession or is this something different

it's as if the economy was recovering

from the lockdowns and the pandemic and

then suddenly in 2022 it just stopped it

didn't contract it didn't fall apart it

just went sideways and it went sideways

in the most odd way possible alternating

back and forth ups and downs that's

exactly what we see in macroeconomic

accounts all over the global map rather

than a recession where Things fall and

is recognizable recession we've got all

these macroeconomic accounts starting

with German GDP that go basically in a

straight line it's not contraction

necessarily though this is a contraction

when you when you compare it to Baseline

growth that needs to happen it's more of

a lack of growth it's the stopped

recovery and the consequences to this

are very real not just in terms of what

politicians paying the price for either

misdirecting the public on the economic

gravity of the situation or outright

lying about it it goes way beyond that

and Germany again the best example of

this labor market deterioration there is

very real and it is set to get much much

worse because there are consequences to

a recovery that just stops out of

nowhere or an economy that just doesn't

seem to be able to grow whether it

contracts outright or not there is

consequences there are

consequences so Germany the unemployment

rate continues to deteriorate it's

rising it's up to 6.1% as of the latest

readings for December it's been 6.1% the

last 3 months of last year which is the

highest rate outside of 2020 since July

of 2016 so right away you can see

something bad is happening there and

it's not going to get any better

Germany's very widely followed an

influential ifo last month said fewer

and fewer companies are expanding their

Workforce instead the share of companies

wanting to cut jobs is increasing in

manufacturing in in particular the

economic crisis is leaving its mark on

Personnel planning almost all sectors

are considering job cuts the metal

industry and car manufacturers and their

suppliers are the hardest hit the trade

sector is also planning to cut jobs

rather than fill them the negative

momentum of recent months continued

among service providers and while the

tourism industry is hiring Personnel

Service Providers and the hospitality

industry are cutting jobs so as bad as

it is already already this sideways

stopped growing it doesn't look like a

recession but it might be worse is

having very real impacts in the real

economy and it gets like I said there's

much much much worse to follow in 2025

according to a recent media report

German companies in the Fortune 500

including big names such as Seamans BOS

fyson kup deuts Bond are reckoned to

have laid off more than 60,000 staff

during the first 10 months of 2024 BOS

one of the country's most admired

manufacturers companies announced in

November alone plans to let go some

7,000 more workers and here's the thing

more of the same is expected in

2025 so as bad as things are is even

though if it doesn't look like a

recession and nobody in any official

capacity which you really shouldn't care

about but nobody in any official

capacity has declared a recession The

Economic Consequences are severe anyway

and like I said Germany is not unique we

we see the same pattern to varying

degrees all over the rest of the world

so whatever is happening in Germany is

also happening here in the United States

in Canada the rest of Europe China Japan

Asia Emerging Markets we see this

pattern all over the

place and so do central Bankers the

reason why central banks are cutting

rates is they see at least the outlines

here and can understand the prospects

for them in other words they call it

sluggish growth some of them have said

it's stagnation they don't want to use

the RW but they can see that something

isn't right and so the responding by

cutting rates and doing so more

aggressively the more it looks the

darker the situation looks and the more

it looks like it's not going to change

in Europe Europe has already done four

the ECB has already done four rate cuts

and they're deciding about how many more

they need to do in

2025 and it's not looking good right

here at the start according to another

report the policy trajectory is clear

and we expect to continue to further

reduce the restrictiveness of monetary

policy according to one ECB official who

said this this past week the latest

information suggests that the economy is

losing momentum and that's the point it

never actually had momentum ECB

officials including Chief Economist

Philip Lane said Europe needs further

monetary easing to help perk up sluggish

growth so even here he gets to call it

sluggish growth when it is something

else beside I mean it's understandable

why he would call it sluggish growth

given his biases and his position but

it's worse than that it's not sluggish

growth it's the lack of growth is it a

recession is it not a recession it

doesn't matter the consequences are very

real

nonetheless but the ECB official said

the conditions are in place for growth

to strengthen over the pro projection

Horizon although less than what was

forecast in the previous rounds because

once again the Central Bank like the

media they're positive and optimistic

about the effect of rate Cuts but as

we'll see when we examine this pattern

it wasn't rate hikes that led us to this

position to begin with so what good are

rate Cuts going to do if rate hikes are

not the reason for this sluggishness

this malaise this lack of recovery this

straight line more than

recession like I said the pattern shows

up practically everywhere Germany is

just the most extreme

and it's very visible in terms of global

trade not just in Europe let's start

with Canada Canadian exports and imports

and what you see is that there was a

rapid growth 2021 and into the first

half of 2022 and suddenly like German

GDP exports out of Canada suddenly

stopped Rising they didn't Crash from

that point forward but they stopped

growing and then went sideways ever

since June of 2022 and that's a month we

keep coming back to over and over again

you see in the us CPI you see a a whole

bunch of other places as I'll go through

here but in the middle of 2022 Canadian

exports they don't crash they don't

outright contract this is a contraction

they don't just fall off the cliff they

go sideways and they have stayed

sideways so there's periods where

exports look like they're picking up and

then like German GDP it alternates with

periods where exports look like they're

falling again and it goes back and forth

back and forth all the time going

nowhere same with Canadian Ian Imports

coming in on the other side again the

reflection in June of 2022 which already

shows you it's not rate hikes from the

fed or the Bank of Canada or the ECB or

anyone else that's not what broke the

economy that's what not that's not what

stopped the recovery what started us on

this trajectory was the fact that the

cure for high prices Supply shock high

prices was indeed high prices the the

final nail in the coffin of the recovery

was the high prices themselves even

higher by oil in in especially March

April May and into June of 2022 it just

it it destroyed enough demand that it

led to this inflection across the entire

global economy it couldn't have been

rate hikes rates were still low at that

point and even if they did work which

they don't they wouldn't have had time

to so it was not Central Bank policies

that led to this inflection led to the

situation so it isn't going to be

Central Bank policies that can possibly

get us out of this you can see the same

thing in Canadian retail sales June of

2022 there's the inflection once

again moving on to Japan another perfect

example of this price illusion the

illusion of recovery exports nominal

exports continued to rise until October

of 2022 then they started to fall off

again not crashing but going sideways

with Japan experiencing a mini Revival

in the second half of 2023 largely based

on the delayed response to the auto

business coming back from the supply

shock and again in real terms major

problems real exports out of Japan the

volumes that they were actually volumes

of goods that they're shipping around

the rest of the world May and June of

2022 there's an inflection there to

where we do see contraction in real

volumes coming out of Japan so once

again it's it's a it's a very unique odd

pattern where now we're going on three

years of lack of growth in nominal terms

and in real terms in terms of trade you

do see a little bit of a contraction and

outside of Germany it's not as if

everything just falls off a cliff China

another one huge runup in

2021 and then downturn in

2022 now what most economists and

politicians have been saying is that

this just points to normalization we had

an artificial High we all agree on that

in 2021 and then the process of

normalization is taken hold especially

as not monetary policies interest rate

policies from central banks have become

more and more restrictive that's what

makes this so incredibly difficult if

not Insidious because politicians can

point to GDP and say there's no

recession there it doesn't look like a

recession they can look at they can

point to these trade statistics and say

well that's just normalization but when

you see it in place after place after

place and you see the consequences of it

especially in terms of the labor market

which I'll get to in a minute here then

you understand in that this is not just

normalization this is the entire global

economy reacting to the artificiality we

all agree on in 2021 and coming to a

very different conclusion how about the

United States but the worst of it is

labor data because you hear all the time

especially here in the US with the

establishment survey the US Labor Market

is incredibly strong and resilient when

nothing could be farther from the truth

especially when you look at it in these

same terms it looks too much like German

GDP as well again same pattern you get

the recovery or what looked like a

recovery then it just stops IT abruptly

stops and employment data goes sideways

from there sideways is a contraction but

it doesn't look like recession and so

because some of the numbers look okay

because it doesn't look like recession

you have everyone telling you that

everything is just fine it's strong and

resilient but you look at the

establishment survey even the

establishment survey it's 4.6 million

short of the 2010's trend as of December

of 2024 so this this great labor market

number that we just got uh for December

it is not it's 4.6 million jobs short

and it's every bit consistent with

everything we're talking about here and

it was the establishment survey was 4.3

million jobs short at the end of 2023

which means the situation actually got

worse in 2024 not better again same

German idea the household survey 8.8

million employees short at the the end

of 2024 after being 6.9 million short at

the end of 2023 and when did the

household survey really start picking up

on weakness yes the middle of

2022 and on and on we can go throughout

the labor data The Establishment survey

again you look at hours worked hours

worked the trend changed to something

very different a straight line lack of

recovery lack of growth stopped

recovering around 2022 and 202 three and

it has continued on ever since they keep

telling you it's normalization strong

and resilient this is nothing to worry

about when the consequences continue to

pile up so what really happened well

these were pandemic distortions we had

basically governments come in and

undertake the least productive means of

redistribution that you could possibly

imagine government's literally paying

people for absolutely nothing

governments giving out what they called

loans certainly in the US the pp which

were which ended up being grants or

gifts again for doing literally nothing

you had a price shock that benefited the

least productive parts of the global

economy at the expense of the most

productive Parts demand restruction and

don't forget how much damage to

lockdowns themselves did especially to

smaller businesses that disappeared and

never came back it created an artificial

high and Central bankers and politicians

since then are in denial that it didn't

lead to the sustained longrun recovery

that they were all promised and that

they promised the public that's where

you get the political angle in all of

this they're in denial saying in

realizing and admitting it didn't

actually work and that's what this

process is it's a transition from that

Distortion to a more stable equilibrium

when that more stable equilibrium as we

see in German GDP or the US Labor Market

data is much less than it was supposed

to be it's much less than we need it to

be it is not a recovery it's a stopped

recovery and this straight line sideways

this unusual pattern whether it's a

recession or not it doesn't matter

because it's happening and there is no

sign it is going to stop Germany is just

where this is the most visible and

obvious but at the end of the day what

we're saying and what we're seeing in

all of these different places while

everyone obsesses about a recession

question it's not really about recession

it's about a world that no longer grows

so in a world that doesn't grow what

happens if oil prices start to Surge

again or what doesn't happen is

inflation