November 13th, 2008
10:26 AM GMT
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BERLIN, Germany - For a while, the German government thought the international financial crisis wouldn't really affect the country. After all, there was never a real housing bubble here, Germans save money rather then go into debt and, unlike many other western European countries and the United States, Germany still has a huge industrial sector.

But now Germany's economy has officially taken a nose dive into recession - and many Germans are wondering what's hit them.

The answer is simple. When the world's economies decline, the world's largest exporting nation is bound to suffer.

The auto sector, Germany's largest and most competitive industry is already feeling the pain. BMW, Opel, VW, and Mercedes have all announced they will halt production temporarily or have already done so because they can't sell enough cars.

Make no mistake; Germans aren't the most important consumers for German cars, the world is. In fact the average age of cars on German roads has drastically increased over the past five years, showing that German consumers are not buying.

Now that the world seems to have stopped buying as well, the automobile industry is looking at massive layoffs and temp workers are the first to suffer. Many have already had their contracts cancelled.

The same holds true in the German microchip industry, where manufacturers like Infineon and Qimonda have begun to lay off temp workers.

But to understand the full magnitude of what is going on you have to understand the sheer size of the German export economy. In the past four years, Germany has been the leading export nation of the world with a trade surplus larger than China's. Germans can export almost anything.

I was in the forests around Berlin the other day and talked to forest owners and lumberjacks. It turns out they were exporting much of their timber to the U.S. as construction wood and now also have to lay off workers since the American housing bubble has burst.

One forest owner told me how a chartered cargo ship with German wood was on its way to the U.S when the contract was cancelled and the vessel had to turn back. "The crisis hit us very suddenly and very hard," is something I have been hearing a lot.

And of course, even in the case of lumber, there are whole industries connected. Only a short drive outside the forest we found one of the world's largest makers of laminate wood floors and wooden panels. Of course the company was exporting almost their whole production to the U.S. Now they will have to lay off about 10 percent of their workforce.

The story of the German recession is not one of consumers closing their wallets; the wallets of German consumers have been closed for a long time. Rather it's a story of people fearing for their jobs and the threat of mass unemployment.

For a long time German politicians said they didn't think that would happen. Now they have become pretty quiet.

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