- By Jonathan Josephs and Jessica Parker
- Business reporter and Berlin correspondent, ` News
2 hours ago
image source, Getty Images
image description,
Exports have traditionally been a strength of the German economy, but are declining
“I fear that we are actually missing out on the future because we are not taking enough risks.”
Verena Pausder is a successful German entrepreneur who clearly expresses where she believes the economy is going wrong.
It was confirmed this week that Europe's largest economy shrank by 0.3% last year.
While the country avoided recession thanks to a statistical quirk, most economists expect Germany to be in that position when figures for the first half of this year are released.
Germany's growth is being held back by the twin shocks of the energy crisis caused by the war in Ukraine and higher interest rates.
There are also long-term structural problems such as aging infrastructure, labor shortages and the costs of combating climate change.
At the World Economic Forum in Davos in January, German Finance Minister Christian Lindner denied that these problems were making Germany the “sick man” of Europe.
“After very successful phases since 2012 and these crisis years, Germany is a tired man after a short night, and the low growth expectations are probably a wake-up call,” he said.
“And now let’s drink a good cup of coffee, that means structural reforms, and then we will continue to be economically successful.”
image source, Getty Images
image description,
Finance Minister Christian Lindner, Economics Minister Robert Habeck and Chancellor Olaf Scholz are fighting to make the German economy grow
For Ms. Pausder, chairwoman of the German Start-up Association and founder of the children's app developer Fox & Sheep, a “rethink” is needed.
“I think we're really good at listing all the negatives and what we're not good at. And I think what we forget is what we actually get done.”
She points out that despite the downturn last year, 2,489 startups were still founded and the country is making good progress in transitioning to green energy.
image source, Patricia Lukas / Verena Pausder
image description,
Verena Pausder, chairwoman of the German Start-up Association, says the economy would benefit from a rethink
Younger generations are more willing to take risks, she says. But as things stand, German pension funds – worth more than $700 billion – “are not allowed to invest in asset classes such as venture capital and private equity.”
“We are used to these big brands of the past and want to do everything we can to have them in the future. And sometimes we put too much energy into preserving what we have.” [rather] then to invest in the new things.”
These big brands have traditionally sold large quantities of cars, machinery and pharmaceuticals abroad, spurring economic growth and influencing government policy.
However, foreign demand has been “declining for many, many months,” says Dr. Klaus Deutsch, chief economist at the Federation of German Industries (BDI).
Exports to non-EU countries fell by 9.2% in December compared to the same period last year.
Dr. Deutsch explains that Germany's recovery depends on the world's two largest economies as well as domestic concerns.
Around 7.5 million people, or 16% of the workforce, are employed in the manufacturing industry and almost half of their production is sold abroad.
This gloomy mood in the manufacturing sector is the cause of the pessimism of German consumers, which is “slightly worse than in most parts of the world”.
image description,
Germany must invest billions to promote the switch from fossil fuels to more environmentally friendly energy sources
Figures for December showed inflation rising to 3.7%, still lower than many other major European economies. The speed at which prices are rising is causing people to hold back on spending on everything from cars to furniture.
It's a feeling that's not hard to find amid the hustle and bustle of office workers and tourists on Berlin's Friedrichstrasse shopping street.
On a cold but sunny winter day, a man tells us that he notices higher prices everywhere, from rent to energy bills to dining out. “Berlin used to be a cheap city. That’s not the case anymore.”
A woman tells us that weekly shopping in the supermarket for her family of five used to cost well under 100 euros. “Now I spend a lot more,” she says.
A lady who says she has a “good job and a good salary” is “okay”. However, she adds, “I think it’s going to get worse overall.”
image description,
People in Berlin's Friedrichstrasse shopping mile were pessimistic about the economic prospects
Despite the shrinking economy, the number of people in employment has risen steadily over the past two years. This indicates lower productivity.
According to Moritz Schularick, President of the Kiel Institute for the World Economy, “the accident is not primarily caused by the current economic situation. It is caused by a deeper cultural discomfort as well as insecurity and fear. There’s a lot of fear.”
This negative view of the outlook is reflected in the latest GfK consumer sentiment survey, which says crises, war and inflation are driving Germans to save rather than spend.
image description,
Car manufacturers like Volkswagen have traditionally been the engine of exports that stimulate the German economy
Mr. Schularick believes moving away from cheap Russian energy is less of a challenge than the long-term problems and the December court ruling that forced Olaf Scholz's government to make budget cuts.
“One of the lessons we learned from Britain and the 1930s is that in these situations you don’t want to further anger sections of the population by making painful budget cuts, because that feeds the extremes and populists.”
Economic discontent has contributed to the political rise of the far-right AfD, which is seen as anti-immigration. Given the labor shortage, this is a concern for business leaders like software giant S` CEO Christian Klein.
“We are now completely against any kind of extremism because we need these talents to come to us to innovate and stimulate the economy. And that's why it was indeed time to stand up not only for myself, but for the German economy.”
AfD deputy leader Peter Boehringer denies his party is bad for business and says companies' biggest problem is high energy costs caused by poor government policies.
image description,
S` CEO Christian Klein is among business leaders who fear rising political extremism will harm the German economy
If the German economy is to get back on track for growth, innovations will be crucial, says Christian Klein from S`. Revenues from Germany's most valuable company rose 6% to $33.7 billion last year.
“Especially in difficult macroeconomic times, many companies actually rely on S`.”
He explains that his company helps its clients address challenges ranging from supply chains to climate change to productivity challenges due to high inflation.
“I don’t see any decline in IT budgets in Germany. What I actually see is that business leaders want to invest because they see technology as an opportunity to solve these challenges.”
Additional reporting by Damien McGuinness in Berlin
You can see more about Germany's struggle for economic growth on Talking Business with Aaron Heslehurst on ` News. Viewers in the UK can watch on ` iPlayer from 11:30pm GMT on Saturday. In other countries it runs on Saturday at 23:30 GMT, on Sunday at 05:30 GMT and 16:30 GMT and on Monday at 08:30 GMT.
Comments are closed.