Germany’s Chancellor Olaf Scholz has made a point of advocating for an economy that is at the vanguard of an industrial transition during each of his numerous trips to industries producing semiconductors and electric vehicle facilities.
However, the image that is depicted by business executives and analysts is a less sunny one; they believe that difficult times are ahead for the largest economy in Europe.
As a result of Germany’s economy falling into a recession at the beginning of the year, it appears that the country will end the year with a deficit, placing it in last place among its competitors in the eurozone.
The key economic institutions and the International Monetary Fund are looking at a reduction of 0.2 to 0.4 percent in GDP this year, but the government is the only one that is still expecting that GDP will expand this year.
The economy is being held back by a number of factors, including soaring inflation, painful interest rate hikes, a slow recovery in its primary export market China, and rising energy costs.
Some economists are sounding the alarm that the downturn may be more than just transitory.
“We currently see the country faced by a growing mountain of challenges,” said Siegfried Russwurm, president of the prominent BDI industrial group. “We see the country facing a growing mountain of challenges.”
Russwurm stated at the annual conference of the BDI that a rising number of enterprises, particularly small and midsize corporations, are focusing on “moving part of their activities out of Germany.”
The concept that Germany is the “sick man of Europe” has resurfaced in the country’s print media, harkening back to the years prior to the year 2000, when the nation struggled to compete on worldwide markets and was confronted with high levels of unemployment.
Scholz, who took office as chancellor in the latter part of 2021, is fond of referring to a different age in terms of the economy.
In an interview with German media that took place in March, he stated that the effort to achieve climate neutrality by the year 2045 will bring back “levels of growth like in the 1950s and 1960s,” which was the time of West Germany’s postwar “economic miracle.”
The Social Democrat chancellor believes that the large expenditures that will be required to erect new wind turbines, develop electric vehicles, make steel manufacturing less polluting, or produce heat pumps will result in a positive economic feedback loop.
The idea that the shift to renewable energy sources will usher in a new economic golden era has been met with skepticism by certain industry professionals.
According to Russwurm, the transition will begin with the investment of billions of euros in “replacing the existing stock” of technology related to fossil fuels with technologies related to renewable resources “with significantly elevated costs.”
“In the near future, this will not contribute to additional economic growth.”
Timo Wollmershaeuser, a researcher at the economic think tank the Ifo institute, made these comments to the German media this week. “We will only reap the reward of this investment in the distant future, when we have effectively managed to reduce greenhouse gas emissions,” he said.
The most influential economic institutions in Germany anticipate that the country’s economy will expand at a rate of less than one percent over the course of the next several years.
Marcel Fratzscher, the head of the DIW think-tank, stated that “Growth could be significantly weaker over this decade than in the 2010s, years of supposed prosperity,” about the current decade.
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A lethargic bureaucracy, low levels of digitalization, and an aging population that might lead to labor shortages are some of the structural problems that are stifling the country’s economic performance and holding it back.
According to Wollmershaeuser’s statement, “If the population falls, GDP will not grow either.”
In light of the fact that the German economy is highly dependent on the industrial sector, it appears as though Germany will be negatively impacted by the increased cost of energy that has resulted from the conflict in Ukraine, despite the fact that these costs have decreased from their initial highs.
For a long time, Russia was Germany’s primary supplier of natural gas. The country’s largest industrial firms received massive amounts of gas from Russia at rates that were quite affordable.
At the BDI event, Ingeborg Neumann, the leader of the German textile industry organization, stated that production in Germany is no longer appealing for her company due to the high cost of energy, the lack of available labor, and the excessive amount of bureaucracy.