Markus Lehner
If you read the business newspapers and even more the stock market news, you might think that „the world“ is experiencing an economic upturn. It is interesting to note what is meant by both „the world“ and „upturn“. Of course, the fact that the USA is once again in the fast lane is being celebrated – and this is being contrasted with the „total exception“ of Germany’s economic slump. Of course, the latter is blamed on „politics“, which hinders a similar dynamism to the USA’s owing to the restrictions of bureaucracy, energy and environmental regulations, labour laws, etc.
Uneven development: Europe …
Some corrections need to be made to this picture. At the beginning of last year, a near-stagnant ‘recovery’ from the corona recession, similar to Europe’s, was expected for the USA. In reality, predicted growth rates were revised upwards from quarter to quarter until a remarkable 2.4 % by international standards was achieved. This contrasts with the growth rates of around 0% in the EU and the economic slump in China, due to the property crisis and the effects of the late lifting of the corona lockdowns. Parallel to the gentle US upturn, there were also higher growth rates in countries such as Japan (2 %), Mexico (3.4 %) and India (6.5 %) – apparently due in part to the recovery in the US.
As far as Europe is concerned, it is by no means only Germany that has fallen far behind the growth rates of the countries mentioned above. In addition to Germany (-0.2 %), the Netherlands and Sweden were also in a slight recession in 2023 – i.e. numbers 5 and 8 by size of GDP, alongside the EU’s largest economy. All major EU countries (with the notable exception of Spain) remained at growth rates below 1 % or narrowly missed recessions, which also applies to Britain’s crisis-wracked, post-Brexit economy.
Of course, this situation has a lot to do with the geopolitical developments surrounding the war in Ukraine. The Russian sanctions and, in particular, the abrupt cancellation of cheaper Russian natural gas and oil have particularly (though not exclusively) affected the German economy. Although the replacement with liquefied natural gas and the expansion of renewable energies was partially successful, it led to sharply higher prices. The German energy price index rose by around 65 % in 2022 – but fell again by 25 % in 2023, which still means a total increase of more than 20 % compared to the pre-sanction period. In addition, increased defence spending across Europe is leading to budget restrictions that severely limit the scope for major economic stimulus programmes.
… and the USA
Neither factor applies to the USA: there have been no significant energy price increases there since 2022 (also because there is no carbon pricing apart from token taxes in individual states). On the contrary, the increased demand for liquefied natural gas has enabled the US energy sector to make a significant contribution to economic growth. Similarly, the special role of its financial system enables the USA to launch a huge economic stimulus programme despite the fact that new debt now accounts for 8% of GDP per year. In 2023, these programmes would amount to twice as much as all other western industrialised nations combined. The coronavirus aid in particular is still leading to a stable increase in consumer spending through domestic consumption. The downside of this debt and subsidy policy can be seen in the fact that inflation in the US has not fallen below 3-4% (core inflation is even above 5%) despite rising interest rates – in contrast to the EU, where it has now fallen below 3% (also due to stagnation).
The US economy is also benefiting from an „easing of the labour market“ due to increased immigration. In view of the rising rate of corporate insolvencies since the rise in interest rates, there is greater scope for the reallocation of capital and labour in the US (migrants into low-paid jobs, laid-off workers into new areas of investment). In fact, the slight upturn is associated with an enormous increase in company collapses. In 2023, the number of major insolvencies tripled compared to the previous year. Both migration and insolvencies are only having a limited effect in the EU and Germany in terms of the reallocation of capital and labour, partly due to the political framework conditions.
At the same time, the restructuring of global markets and value chains is having a more negative impact in the EU than in the USA. Germany and the Netherlands are particularly affected by „friendshoring“ tendencies, that is, relocation to countries regarded as allies rather than rivals. In addition there are supply chain problems, especially with regard to business relations with China. Significantly, despite the political rumblings, US-China business has picked up enormously in the last year, with a 7% increase in imports to the USA.
Stock market euphoria
Although the current phase of growth in the USA is obviously due to a number of special factors, there is a sense of euphoria on stock markets, as if a new boom era has dawned. Since last October, share prices on the US stock exchanges and the DAX have risen almost in parallel by 22%. In the US, technology stocks associated with „artificial intelligence“(AI) in particular are going through the roof. This is the case with chip manufacturer Nvidia, whose share price quintupled in the last quarter of 2023. However, Nvidia, which supplies the hardware for the increased requirements of AI applications, increased its quarterly profit from $3 billion to $17 billion in the same period. And it is just one of 7 „big players“ currently benefiting from the AI hype on the stock markets. Progress in the integration of generative AI into conventional IT infrastructures promises major leaps in productivity in the future. However, their realisation may still take several years. The high expectations could therefore be just as premature as they were in 1999 during the dotcom bubble.
Overall, the stock market has once again moved far away from real economic values, as expressed in the „price earning“ index, for example. This compares the price valuation with the longer-term inflation-adjusted profits. Values of around 20 are considered „normal“ – during the great crash of 1929 it stood at 31.5, before the dotcom crash at 44.2 – currently it stands at 34.2. It is therefore no wonder that a certain nervousness is spreading on the stock markets. A few bad pieces of data from companies or economic forecasts for the USA would probably be enough to trigger price falls. The uncertainty on the financial markets is adding to the mass of crises that are currently accumulating (climate, wars, debt, inflation, stagnation in global trade and value chains, political uncertainties …).
Among German stocks, one share in particular stands out: that of the armaments group Rheinmetall: before the Russian invasion of Ukraine, the share price was still at 90 and is currently already at 500. Although the group is a small company by global standards, it has important technical capabilities (currently in the increased production of artillery ammunition, for example). The new arms race in Europe requires a completely new structure of defence companies for EU capital. The many small national monopolies alone cannot keep pace in the international arms race. Rheinmetall serves as a model here, having recently acquired several smaller companies (in Spain, the Netherlands, Romania, etc.). The other is large European „co-operations“, such as the one between the „tank manufacturer“ Krauss-Maffei Wegmann and the French Nexter to form KNDS (KMW+Nexter), based in Amsterdam. Last year, KNDS entered into a cooperation with one of the largest European defence companies, the Italian Leonardo – in particular to build the future tank of the European armed forces. It is to be feared that European defence companies will become a new centre of EU industrial policy, swallowing up billions in taxpayers‘ money, investment capital and speculative investments.
Prospects
In addition to the uncertainties of the war in Ukraine and the costs of armament policy, other factors have already been named that make it difficult to assess economic development in Germany: the further development of the crisis in China, with its impact on international value chains; the fragmentation of global trade; the growing costs of climate disasters and the development of energy costs; the uncertainties of developments in the USA (not only regarding the outcome of the presidential election, but also the economy); the possibility of turbulence on the financial markets; the possibility of further major insolvencies following the Karstadt-Benko bankruptcy, etc. Even if the economic climate indicators are now pointing upwards, some of these uncertainty factors could quickly lead to a renewed slide into a prolonged recession.
While the situation on the labour market, the problems with falling mass consumption and inflation have led to an upswing in wage struggles since last year, even these have not been able to prevent losses in real wages, even in areas covered by collective agreements. In an environment of recession and company bankruptcies, wage struggles will certainly not become any easier in the near future. In the metal industry in particular, there will be further disputes about who has to bear the costs of the transformation to CO2 -reduced technologies (e.g. in the less labour-intensive e-mobility sector). The GDL train drivers‘ strikes have shown that they can exert pressure with less consideration than the DGB trade unions. The problems must be solved at the expense of capital’s profits by dividing the work between all hands (reductions in working hours with full wage equalisation) and aligning wage and price trends. In this respect, the opposite of wage restraint is called for in view of the current recession expectations.
At the same time, the results of the wage struggles of recent years not only highlight the fatal role of the trade union bureaucracy, which acts as a brake on them. They also raise the question of how this can be broken. On the one hand, this requires the development of an organised, class-struggle opposition in the companies and trade unions. Its task is both to radicalise the struggles and to broaden a political alternative to the reformist and bureaucratised leadership.
At the same time, however, it would be too short-sighted to believe that the problem of the political orientation and leadership of the working class can be solved at a purely trade union and workplace level. The struggle for a grassroots movement will ultimately only be successful if it goes hand in hand with the struggle for the creation of a new revolutionary party and International.