Lately, dark clouds have been hovering over the German economy, which is the fourth largest in the world and the first largest in Europe. Experts explained the problems and their causes in the country, which is likened to the ‘sick man of Europe’.
Alarm bells are ringing for the German economy, the largest in Europe.
Latest data increases concerns about the German economy, which is the fourth largest in the world with a national income of 4.1 trillion dollars.
The German economy, which shrank by 0.4 percent in the last quarter of last year and 0.1 percent in the first quarter of this year, stagnated in the second quarter of the year.
The German Central Bank (Bundesbank) expects a contraction in the third quarter as well.
According to the latest OECD forecasts published this week, the German economy is projected to shrink by 0.2 percent in 2023. According to the OECD, Germany is one of the two countries in the G20 that is expected to shrink in 2023. The other is Argentina.
Annual consumer inflation in Germany is also at 6.1 percent, well above the 2 percent target.
TÜSİAD Berlin representative Alper Üçok and journalist Tunç Akkoç evaluated the latest developments in the economy of Germany, where 3.5 million Turks live and is one of the most preferred countries by Turks who want to settle abroad, to sozcu.com.tr.
‘THE PROBLEMS ARE NOT TEMPORARY, BUT STRUCTURAL’
Üçok pointed out that the German economy has not been able to overcome the stagnation it entered with the Covid19 epidemic for 4 years and that the current GDP size is still at the level of the fourth quarter of 2019, as a contraction is expected in the last quarter of 2023, and said, “Therefore, the problems in the German economy are not temporary but structural.”
Stating that a comprehensive structural reform program in Germany was implemented by the Schröder government in the early 2000s, and that the German economy was able to grow during the Merkel periods with the Agenda 2010 structural reform program, Üçok said, “However, changing global conditions and competition create the need for a new set of structural reforms and
“Merkel’s last term and today’s governments have failed to make progress on this issue,” he commented.
‘ENERGY SHOCK HAS AFFECTED IT, IT IS LOOSING ITS COMPETITIVE POWER’
Üçok lists the structural problems of the German economy as follows:
* Germany is delaying the transformation in some sectors (automotive, chemistry, machinery, electronics) that are the basis of its economy and industry, and therefore loses its competitiveness.
* Industrial production is declining in Germany. Production in many sectors is at the same level as 10 years ago.
* RussiaThe “Germany Business Model” was also damaged in the process that started with the invasion of Ukraine. German industry, which supplies a large portion of energy and raw materials from Russia, was significantly affected by the energy shock. In energy-intensive sectors (iron-steel, metallurgy, chemistry, glass, paper), the production decrease in 2022 is between -10 percent and -20 percent. It is possible that there will be a process of downsizing and deindustrialization in some energy-intensive sectors.
* Germany is among the most underdeveloped countries in the EU in terms of digital infrastructure, and this negatively affects the economy.
‘THERE IS A DEMOGRAPHIC DEFICIT, INVESTMENTS ARE MOVING’
* There is a demographic gap. Germany needs 400 thousand skilled labor migration every year in order to maintain its economic level. Since this cannot be achieved, there are 1.2 million job openings, 400 thousand of which are qualified workforce such as engineers and technicians.
* For these reasons, the German business world is moving or considering moving its new investments or some of its existing investments outside Germany. According to the German Chambers of Industry and Commerce (DIHK) survey, 1 in every 3 businesses moves their investments abroad. In addition, Germany has difficulty attracting foreign investment. It has fallen far behind France, for example, in attracting foreign investment in the last 2 years.
* In addition to all these, bureaucracy has also become a huge problem in Germany.
* The most important project of the current German government was to create a green economic revolution and trigger growth with subsidies and technology to be created in these areas. However, it seems that there is a sharp change in all these areas, from wind turbines to solar panels, solar cells, heat pumps and electric car batteries. Chinese and Asian competition also prevents this growth scenario.
‘WAR, SANCTIONS AND PROTECTIONISM AFFECT’
Akkoç also said, “Germany’s Ukraine war, sanctions against Russia, energy problem and USA“The fact that Turkey is in a difficult situation due to ‘protectionist’ policies is now accepted by everyone,” he said.
Pointing out that the manufacturing industry and service sectors are in decline, Akkoç said, “Exports have shrunk. A call was made for state intervention in the construction industry. “The construction sector, which constitutes 12 percent of Germany’s gross domestic product and employs approximately 1 million people, is seen as one of the main pillars of the German economy,” he said.
Pointing out that Germany experienced a large decrease of 20 percent in its most energy-intensive sectors, Akkoç said, “Taking the 2015 production level as a starting point, all industrial production decreased by 5 percent, while this rate approaches 20 percent in energy-intensive sectors. “The monopolies in the chemical industry, where Germany is at the forefront in the world, have started to shift their production out of Germany,” he said.
Stating that one of the biggest debates is deindustrialization, Akkoç stated that, for example, the Federation of German Industry (BDI) said that not only large companies but also SMEs are planning to move some of their activities outside Germany.
“Things are not going well in the automotive industry, which can be called Germany’s most important industry,” Akkoç said and continued:
“In addition to the Ukraine war, the US’s protectionist policies, especially against China, and the deepening US-China rivalry negatively affect Germany. Berlin’s economic model stands out as exporting manufactured goods with China as its target market. “Competition from China is already a major obstacle, but the rise in energy costs is making the situation even more difficult.”
USA’S DECLARATION OF ECONOMIC WAR
German Economy Minister Robert Habeck said at the conference in June, “[Amerikalılar] “They want to have semiconductors, they want the solar energy industry, they want the hydrogen industry, they want electrolyzers,” said Akkoç, and reminded that he used the expressions “This is like a declaration of war” for the state subsidies put into effect by the Biden administration in the USA within the scope of the Inflation Reduction Act, but He pointed out that Germany preferred to take precautions against China by following them instead of becoming independent from US policies in order to escape this spiral.
“Nearly 20 years ago, Germany overcame the title of ‘Sick Man of Europe’ with an ambitious package of ‘labor market reforms’ that ushered in a period of sustained prosperity, driven by strong demand for its machinery and automobiles, especially from China. Germany was exporting much more than it was buying. “Now, the ‘decoupling’ from Russia and China points to a new situation,” Akkoç said and continued:
“On the other hand, Germany says that it plans to overcome these problems in the long term with a ‘green transformation’. Although Europe’s ‘green technology’ exports are still behind China, they are still ahead of the USA.
Additionally, Germany announced that it was ready for incentives despite everything. Preparations are being made to expand subsidy schemes. Another structural problem of Germany, the loosening of bureaucracy, is also being discussed.
THE SEARCH FOR REorganization ACCORDING TO WAR
On the other hand, it is also a fact that with the Ukraine war, a significant amount of blood was pumped into the German defense sector. Both arms companies and their affiliated industries are experiencing unprecedented stock rallies since February 2022. Germany seeks to reorganize its economy according to the war.
Before the 2000s, Germany was treated as the ‘sick man of Europe’ due to low growth rates and high unemployment, but Germany has overcome this. Today, there are high incentives, steps to be taken to overcome bureaucracy obstacles, etc. Despite the measures, the German economy is under great pressure.”