What's going on?

Economists warned on Monday that Germany�s economy could shrink next year.

What does this mean?

Germany�s robust economy did shrink in pandemic-plagued 2020, it�s true, but those were extremely hard times. But it doesn�t look like the next year will be any easier on Europe�s biggest economy: extortionate energy prices � a result of Russian restrictions � have been taking their toll on Germans� disposable incomes, and Munich�s Ifo Institute believes those prices could tip the country�s inflation to average 8.1% this year and 9.3% the next. That�s a big blow � big enough that the economic research group doubts the government�s $65 billion relief package will do much to offset the hit. Everyday folk will be left with less cash to splash on nice-to-haves, then, which won�t help the shortage-stricken economy. That might be why the institute predicts the German economy will grow just 1.6% this year before shrinking 0.3% the next � only growing again when 2024 comes around.

Why should I care?

For markets: The US is safer…
Germany�s the rule rather than the exception, with much of Europe facing similar problems. That�ll be why Goldman Sachs thinks investors should take a break from the �dire� situation across the region, and said on Monday that US firms � mainly ones that mostly do business within home borders ��are a better bet for higher returns. Looks like Goldman might be onto something: an index tracking a group of US firms with heavy links to Europe has underperformed one tracking mainly domestically-trading US firms by around 20% this year.

For you personally: �But not that safe.
Still, there are major economic risks in the US as well as Europe, which might be why Goldman advised cautious investors to own more dividend-paying stocks with strong balance sheets and stable earnings growth. That way, investors can bring in a regular stream of income that�ll see them through any upcoming slumps in stock prices.