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The Port of Hamburg is a hub for German imports and exports, but German foreign trade will continue to decline in 2024. (Symbolic photo) © Christian Charisius/dpa
The public sector has not invested enough, and now Germany is in crisis. But it is not only the government that has done too little to restructure the economy.
Munich – The German economy is in a downward spiral: no growth, no sense of optimism, constant reports of stagnation and a sense of crisis. This is also reflected in the business climate index of the Munich ifo Institute on Monday (26 August): The Ifo business climate fell in August for the third month in a row. It fell by 0.4 to 86.6 points, as the institute announced in a survey of around 9,000 managers. Companies assessed their business situation as worse and the outlook more pessimistic than recently. “The German economy is increasingly falling into crisis,” said Ifo President Clemens Fuest.
Germany “has settled into stagnation” – hope lies with consumers
The mood deteriorated noticeably, particularly in industry. The business climate of service providers also deteriorated, while trade improved slightly after two declines in a row. In the construction industry, the mood remained sober. “The German economy has settled into stagnation,” said the head of the Ifo surveys, Klaus Wohlrabe, to the news agency Reuters“We have been moving along the zero line in terms of growth for some time now.” In the third quarter, there could even be a further decline in gross domestic product, after there was already a slight minus of 0.1 percent in the spring.
The expected recovery is therefore increasingly shifting towards 2025, said chief economist Ulrich Kater of DekaBank. “The main source of hope is the continued rise in consumer incomes in the coming months.” This is also urgently needed. “Because German companies can no longer rely on exports due to a lack of global demand and increased international competition.”
Reasons for the misery of the German economy: Germany has been resting for a long time
The reasons for the misery of the German economy are manifold. However, this also means that they are difficult to remedy. The country is facing several challenges at the same time: demographic change and the resulting shortage of skilled workers; high energy prices, which are depressing the country’s competitiveness; delayed investments in digitalization, green transformation and infrastructure, all of which now have to be made up for; and finally, increasing competition from countries such as China and India, which want to be more than just the workshop of the world.
Another aspect that economist Daniel Stelter highlighted in an interview with Focus Online underlines: Germany has made no effort in recent decades to diversify its industries and to embrace new developments. “I always joke that we already had all the leading industries that we still have when there was still an emperor in Germany: automotive manufacturing, mechanical engineering, the chemical industry. OK, we also have SAP, but the company is already 50 years old,” he told the portal.
“We live from old industries in which we developed a globally dominant position over 100 years ago and have defended it to this day.” That is of course a good thing – but it also shows that Germany is either not keeping up with new developments or is not in a position to establish itself in new business areas in the long term.
Companies have invested too little since 2008: “That is not the task”
The state is therefore not the only one to blame for the situation, as it has undoubtedly not invested enough, especially in the past 20 years. It is also the country’s companies, whose investments have left much to be desired since the financial crisis of 2008. This is shown by statistics from KfW Bank from 2021: According to this, German companies invested 13.1 percent of their gross domestic product (GDP) in 2008. Since then, the level of investment by companies has remained continuously below this value, reaching 12.3 percent in 2020. For comparison: in 1990, according to KfW, investments in Germany were still at 15.8 percent of GDP.
The economists in the study see the age of the company owners as a possible reason. The average age of the company owners rose by eight years between 2002 and 2021. “The inclination to invest decreases massively as the owners get older,” they say. If structural challenges such as energy costs and bureaucracy are added to this, the likelihood of an investment is further inhibited.
German companies have on average saved rather than invested over the past 15 to 20 years. The state has done the same. Economist Stelter says Focus: “That is not the task. The companies should have borrowed money and invested. And the state should not have had to save either.” This double failure is now putting the German economy in a predicament – it really needs to start catching up. But the economic policy course is not currently set for this.
Fear of loss of prosperity: Clear signals from politicians are still missing
The many challenges that society and the economy are now facing are also causing uncertainty and fear of a loss of prosperity. This is putting even more strain on the economy, as the ifo explains in its current report on the business climate. Chief economist at the KfW development bank, Fritzi Köhler-Geib, therefore also said: “In my opinion, the currently exceptionally low climate level is primarily a result of the great uncertainty in companies, which are confronted with a multitude of transformative challenges and persistent global crises.”
