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- Written by Jonathan Josephs & Jessica Parker
- Business reporter and Berlin correspondent, BBC News
image source, Getty Images
Exports have traditionally been a strength of the German economy, but they are on the decline
“I’m worried that I’m actually missing out on the future because I’m taking too few risks.”
Verena Pausder is a successful German entrepreneur who is clear about what she thinks is wrong with the economy.
This week it was confirmed that Europe’s largest economy shrank by 0.3% last year.
Thanks to some statistical quirks, the country avoided recession, but most economists believe Germany will be in that situation when the numbers are released for the first half of this year.
Germany’s growth is being held back by the twin shocks of the energy crisis caused by the Ukraine war and rising interest rates.
There are also long-term structural issues such as aging infrastructure, labor shortages, and the cost of climate action.
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 a very successful period since 2012 and the crisis of the last few years, Germany has had a short night and is exhausted. Low growth expectations are probably a wake-up call,” he said.
“And now we have good coffee. That means structural reforms so we can continue to be economically successful.”
image source, Getty Images
Finance Minister Christian Lindner, Economy Minister Robert Habeck and Chancellor Olaf Scholz are striving to grow the German economy.
For Pausder, president of the German Startup Association and founder of children’s app developer Fox & Sheep, what is needed is a “change in mindset.”
“I think we’re so good at listing all the negative things and things we’re bad at. And I think what we forget is what we actually accomplish.”
She pointed out that despite the economic downturn, there were still 2,489 startups founded last year, and the country’s switch to green energy is well underway.
image source, Patricia Lucas / Verena Pausder
Verena Pausder, president of the German Startup Association, says the economy would benefit from a change in mindset.
Younger generations are more willing to take risks, she says. But as it stands, German pension funds, which are worth more than $700 billion, “are not allowed to invest in asset classes such as venture capital or private equity.”
“We’re used to the big brands of the past and want to do everything to have them in the future. And sometimes we put too much energy into preserving what we have. You may” [rather] Then start investing in new things. ”
These big brands have traditionally sold large quantities of cars, machinery and medicine overseas, driving economic growth and influencing government policy.
However, Dr. Klaus Deutsch, chief economist at the Confederation of German Industry (BDI), said external demand “has been declining for many months.”
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 will depend on the world’s two largest economies and domestic concerns.
Approximately 7.5 million people, or 16% of the workforce, are engaged in manufacturing, and nearly half of the manufacturing is sold overseas.
According to him, this gloom in manufacturing is causing pessimism among German consumers, which is “slightly worse than in most parts of the world.”
Germany needs billions of dollars in investment as it continues to switch from fossil fuels to greener energy sources
December figures showed inflation rose to 3.7%, which remains low compared to many other major European countries. Rising prices mean people are cutting back on spending on everything from cars to furniture.
It’s not hard to spot this sentiment amidst the hustle and bustle of office workers and tourists on Friedrichstrasse, Berlin’s shopping capital.
On a cold but sunny winter day, one man said he noticed that prices were higher everywhere, not just when going to restaurants, but from rent to utilities. “Berlin used to be a cheap city. It’s not anymore.”
One woman said that for her family of five, weekly supermarket shopping used to cost far less than 100 euros. “Now we spend far more than that,” she says.
Women who say they have “a good job and a good wage” are doing “just fine.” But she added: “Overall I think the situation will get much worse.”
People in Berlin’s Friedrichstrasse shopping district were pessimistic about the economic outlook.
Despite the economic contraction, the number of employed people has steadily increased over the past two years. This indicates a decrease in productivity.
Moritz Schlalick, director of the Kiel Institute for the World Economy, said: “Unhappiness is not primarily caused by the current economic situation. It is caused not only by uncertainty and fear, but also by deeper cultural anxieties. .There’s a lot of anxiety.”
This negative feeling about the outlook is reflected in GfK’s latest consumer sentiment survey, which says the crisis, war and inflation are all pushing Germans to save rather than spend.
Automakers such as Volkswagen have traditionally driven exports and stimulated the German economy.
Schlarik believes that moving away from cheap Russian energy is less of a long-term issue or a challenge than the December court ruling that forced President Olaf Scholz’s government to make budget cuts.
“One of the lessons we learned from Britain and the 1930s is that in a situation like this, you don’t want to further antagonize sections of the population by making painful budget cuts. Because it feeds extremes and populists.”
Economic discontent has helped the political rise of the far-right AfD, which is seen as opposed to immigration. The labor shortage is worrying business leaders such as Christian Klein, CEO of software giant SAP.
“We are completely against extremism of any kind right now, because we need to be blessed with this kind of talent to innovate and revitalize our economy. The time has come to speak up for the German economy as well.” ”
AfD deputy leader Peter Boehringer denied that his party was having a negative impact on business, saying companies’ biggest problem was high energy costs caused by bad government policies.
SAP CEO Christian Klein is among business leaders concerned that the rise in political extremism will harm Germany’s economy.
SAP’s Christian Klein says innovation will be essential if the German economy is to return to growth. Germany’s most valuable company saw funding raised by 6% last year to $33.7 billion.
“A lot of companies are really turning to SAP, especially in difficult macroeconomic times.”
He explained that his company helps clients address a variety of challenges, from supply chains to climate change to productivity challenges due to high inflation.
“In Germany, I don’t see IT budgets decreasing. What I’m actually seeing is that business leaders are willing to invest because they see technology as an opportunity to overcome these challenges. It means there is.”
Additional reporting by Damian McGuinness in Berlin
For more information on Germany’s struggle for economic growth, Talking business with Aaron Heslehurst On BBC News. Viewers in the UK can watch on BBC iPlayer from 23:30 GMT on Saturday. In other countries, it starts at 23:30 GMT on Saturday, 05:30 GMT and 16:30 GMT on Sunday, and 08:30 GMT on Monday.
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