- Germany shows signs of possible upcoming economic collapse
- This can be seen in a 2.4% decline in industrial production
- Germany’s overall economy shrank by 0.1% and unemployment is rising
- German GDP forecasts for 2024 and 2025 are downgraded to 0% and 0.9% respectively
- France shows a similar trend and a 0.5% contraction in automobile production
- The trend shows itself in the U.S. as well, with a 0.2% decline in output
- With a decline in consumer demand and a drop in Big Lots stocks to $0.50
- The interest rate cut in September may not have time to have the desired effect
Germany is showing worrying indicators of a possible upcoming recession and further economic collapse that could pull the entire world economy down with it.
Key indicators are the decline in the manufacturing sector, particularly the automotive one and the German flagship Volkswagen.
This in turn leads to a decrease in the need for labor, leading to wage cuts and layoffs. This means that people do not have enough money, which is also being rapidly depreciated by inflation, to support industry with their demand for products.
Hopes that the economic downturn was a seasonal phenomenon due to Covid 19 and recovery from uncontrolled money printing are beginning to fade, and we are returning to the natural balance of supply and demand for which we are probably not ready at all.
This may indicate that the problem is not seasonal, but structural, and global in scope. In France, we have a similar decline in industrial production in the automotive sector.
In the US we may see the same, although the most striking indicator is the dramatic fall in the shares of Big Lots discount stores.
All of this is only further pushing companies to significantly optimize production through downsizing, as well as implementing intelligent systems.
In turn, this creates the need to implement a minimum basic income, which serves as another favorable reason to implement CBDC.
What Is Happening to the German Economy and Why Does It Matter?
Let’s take a closer look at the numbers of Europe’s largest economy, which has a direct impact on the entire euro sector and an indirect impact on economies around the world.
Bloomberg published an article in which they pointed out some alarming numbers, namely the decline in German industrial production with one of its driving sectors being automotive.
The German economy contracted by 0.1% in the second quarter of this year, removing the last hopes of ending the post-COVID-19 economic stagnation and pointing to a possible impending recession. This threatens to skyrocketing unemployment, and purchasing power, which could further hurt manufacturing.
The German Institute for Economic Research has already lowered its forecast for this year and next and now expects zero growth. Again, take a closer look, it previously forecasted growth of 0.4% in 2024 and one and a half percent in 2025, but now the optimistic forecast is for GDP growth of 0% in 2024 and only 0.9% in 2025.
Volkswagen’s considering an unprecedented plant closure in its home market also speaks volumes but it’s starting to happen in other countries, and globally the decline in production compared to June reached 2.4% worldwide, even worse than recent forecasts by Bloomberg analysts.
In particular, Volkswagen made 9,000,000 cars although the capacity is 14,000,000, which creates a big problem without a good solution. Imagine that your production is designed to produce more than you are able to sell, which means you don’t need to invest in expanding that production, and therefore you don’t need to hire more people to maintain it.
On the contrary, if you have a part of production that is inoperative and you need to quit it, otherwise you will experience losses. In particular, Volkswagen’s capitalization has fallen to five $56B and even though the company continues to make profits last year the company’s operating income was €22.6B.
What Is Happening to the Rest of the World’s Economies?
Germany serves as a strong catalyst for the rest of the world, but it is not the only example, and globally, output contracted 2.4% from June, worse than analysts had forecast in a recent Bloomberg survey.
A similar situation is observed in France, where the industrial production figures decreased by %0.5, which was worse than economists’ expectations, the key role in this was played by a sharp decline in production, again in the automotive sector.
Speaking of industrial production in the US, the latest data showed a 0.2% year-on-year decline, which once again confirms that production at the level of the entire manufacturing sector continues to decline.
We already have very disappointing data regarding the decline in new orders, the drop in employment, the increase in backlogs, and even the decrease in export orders. All this can lead to radical optimization, which means that many people are unemployed, which can lead to a recession in the world economy.
It cannot be overemphasized how telling an indicator of the bankruptcy preparations and Big Lots discount stores’ stock plunged from $72 to $0.5 due to a noticeable drop in demand.
Again, note that Big Lots is already a chain of discount stores, where most people who shop don’t have much financial security, watch inflation take away their money faster than they can earn it, and are forced to pay attention to discounts. So closing Big Lots is an additional huge crash to the working population, and creates even more people who will be in a very desperate financial situation.
What Is the Problem and What Does It All Mean for the World Economy?
All the key industries in the world need to find a solution that allows them to scale production, that allows them to employ more people by getting them to provide a stable and high demand for their products.
This was not a problem in COVID when people were given lots of “free” money and industries experienced a large influx of funds from buyers for goods ranging from cars and electronics to consumer goods. But the “free” money ran out, and in an attempt to fix its effects, buyers faced boosted inflation, and increased interest rates that reflected prices too high for purchases.
Buyers simply don’t have the money to jumpstart the economy, and it is severely expensive for the industry with current interest rates and weak demand from consumers.
This all looks very much like a structural problem, and even a sharp cut in interest rates in September may not have the time to have the effect necessary to flatten the economic balance sheet into its pre-COVID state.
The Kiel Institute for the World Economy said this week that GDP is expected to shrink by 0.1% this year after falling by 0.3% in 2023, a situation that will only get worse.
And it’s hard not to agree that the latest advances in AI come in handy against the backdrop of all these developments. It is already capable of automating processes that were previously impossible and required a human to manage even the most advanced tools. Previously unavailable ways to optimize costs simply couldn’t have come at a better time than now, and businesses can’t help but count on it to one degree or another.
Also, this kind of economic collapse – where even the largest banks are struggling and at risk of going out of business, as we’ve written about in other analyses – seems like a lose-lose for everyone, but a very favorable climate for a potentially major financial shift.
All this could lead us to a situation where more and more people will be out of work and get a minimum basic income, also maybe more high-tech factories will be built. We won’t need all these factories we have now, we won’t even need to have 1000 banks just a few of the biggest ones and they will be easier to control.
We can already see this happening when compensation per employee rose 4.3% in the second quarter of this year, but in the first three months of this year, it rose 4.8%, although in June the European central banks predicted a 5.1% increase in wages.
And if we keep in mind the structural nature of this problem, it is worth looking further and understanding what is driving even this growth. If we compare the U.S. unemployment rate (blue chart) with the average hourly earnings of production and non-production workers (red chart), we see an almost mirror image of this figure. As more people become unemployed employers continue to raise wages even during a recession to keep only key employees.
Pay attention to the following graphs, which businesses must also look at and make appropriate decisions.
The blue one here is labor productivity and the red one is the change in consumer price index CPI, i.e. inflation, we can see the increase in labor productivity equals the decrease in inflation, i.e. when labor productivity increases the consumer price index decreases.
Also, a reduction in unit labor costs also leads to a reduction in inflation and this is why companies and businesses in the future will benefit from having a smaller but more productive workforce, where the ideal tool will be full automation and the elimination of any counteragents, including in the financial sector.
Conclusions
This is only one of the possible views on the situation, and maybe it is just another economic cycle, but this whole economic situation created by decision-makers who know exactly what effect certain financial instruments have is alarming.
It is very similar to the classic scheme where first a problem is created and then a solution is heroically proposed and because the situation is critical it often turns out to be the only solution.
The most obvious here may be the mass adoption of AI, a basic minimum income, and the introduction of CBDC as a repudiation of accumulated problems and a new chapter in the world economy.
And in this future, those who have taken crypto seriously, have not been influenced by emotion, and stocked up on strong cryptocurrencies – with a high probability may be right on how to save their values by leading out of this turbulent system.
