The People’s Republic of China currently has severe economic problems to contend with. On top of that, relations between advanced economies in the West and China have worsened noticeably of late. These developments also present considerable risks for Germany. “If these risks materialise, Germany’s economy could take a huge hit,” the Bundesbank writes in an article in its January Monthly Report. The article explores Germany’s dependence on China, and is the first to also focus on potential risks to the financial system. 

The year 2020 saw German economic output contract by 5.0%, with the drop in gross domestic product in a year overshadowed by COVID-19 bringing to an end a ten-year run of growth. This compares with a 0.6% rate of expansion in 2019.

Economic activity in Germany may have more or less stagnated in the first quarter of 2022, the Bundesbank’s economists write in the current issue of the Monthly Report. They expect Russia’s war of aggression against Ukraine to have had only a limited impact on Germany’s economy at first. Even so, the repercussions of the war are likely to significantly weaken the recovery, which had actually got off to a strong start. “Disruptions to foreign trade and supply chains, soaring energy prices and heightened uncertainty are weighing on enterprises and households,” the report states.