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It looks like a flashback. Germany is the country the neighbors are worried about - not because of its strength, but because of its economic weakness.
The current constellation evokes memories of the early 1990s. At that time, the Federal Republic was falling back inexorably. It took years for the structural crisis to be overcome and Germany to experience a steady upswing from 2006, which the world recession of 2008/09 was unable to stifle.
This dynamic phase is over for now. The mood among companies has been falling for more than a year, and it is spreading to more and more industries: industry, trade, services. The mood is only dazzling on the construction site, as the Ifo Institute's business climate index shows.
In the second half of 2018, the German economy no longer managed to stagnate. This year, the International Monetary Fund (IMF) predicted in its updated economic outlook that it will grow by just 0.7 percent this year. It is the second lowest of all major Western economies. Only Italy is growing even more slowly.
Sure, the forecast is a snapshot. The IMF is already forecasting significantly higher growth rates for next year. And yet, the global economic risks the fund sees coming - further escalating trade conflicts, a Brexit without an agreement with the EU, sudden financial market turmoil in the emerging countries - would hit the open, export-oriented German economy harder than other countries.
In the late 1990s and early zero years, there were also some bad economic starts. Upturns were predicted, but then always stalled. This went on for years.
It is worth recalling the situation at the time; After the long, good years in which the Federal Republic was bursting with economic self-confidence, many things are forgotten.
Outlines of a structural crisis
Almost 20 years ago, the Federal Republic was the country with the "red lantern" - the tail light at the rear of the European train. In 2002, Hans-Werner Sinn, then president of the Munich Ifo Institute, published an essay of the same name. In it, he diagnosed a comprehensive structural crisis: a weakening industry, threatened by international competitors, an aging population, high unemployment and increasing government debt, as well as a wave of corporate insolvencies and a smoldering banking crisis. Germany did not paint a good picture at the time.
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Fortunately, we are still a long way from such a problem scenario today. Employment is high, unemployment is low. The indebtedness of the state and the companies is low in an international comparison. The foreign trade surplus is still gigantic, which speaks for the competitiveness of the local economy.
Nevertheless, fundamental structural questions arise. Trade war and de-globalization hit the heart of the business model of large parts of the export-heavy German industry. The aging of society remains an issue, even if immigration, especially from other European countries, has covered the problem since 2010.
The Federal Republic has no leadership role in digitization. This is not only evident in the network infrastructure. Investments in intellectual capital are also comparatively low, while venture capital to finance young, innovative companies is relatively scarce, as the IMF recently stated in its annual country report.
Two warnings
The German economy, it looks like, is at the end of a long upswing based on the traditional strengths of the local industry: mechanical and plant engineering, cars, chemicals. Germany offers what the emerging countries need for their own industrialization, plus chic cars (with large combustion engines) that the wealthy around the world want.
But this long cycle is waning. The industrial sector, whose share of total economic output in Germany is about twice as large as in comparable countries, has to reinvent itself in parts.
Looking back at the last German structural crisis, two conclusions emerge:
- First,
the faster a necessary change takes place, the better. In the 1990s, it took a long time before the problem diagnosis was widely accepted. And it took another year before this knowledge led to actual changes.
These include not only the Hartz laws and the "alliances for work", but also the improvements in the education system as a result of the "Pisa shock" in 2000, the systematic expansion of science and research, the gradual facilitation of immigration and much more.
The last crisis also lasted so long because discouragement and pessimism solidified - poison for the further development of society. - Secondly,
Germany's problems are a burden for the whole of Europe. Just because of the size of our economy and the close ties between suppliers, phases of German weakness affect our neighbors. This applies in particular to the rest of the euro zone.
People like to forget it today, but in the nineties, when Germany was the country with the red lantern, the European Central Bank (ECB) kept interest rates low precisely because of the malaise on the right bank of the Rhine - which fueled unhealthy booms in euro countries such as Spain and Ireland, which later led to the euro crisis.
The ECB is now loosening its monetary policy again. She justifies this with the weak economy in the euro zone (new figures on Wednesday ) - and that currently means above all: in Germany. If the local economy suffers, it affects the entire eurozone. Accordingly, the ECB feels compelled to act if things are not going well in Germany - even if this is particularly criticized in Germany.
The main economic events of the upcoming week
Monday
Luxembourg - BMW subsidies in court - The European Court of Justice judges the aid for the Leipzig BMW plant. In 2014, the carmaker filed a lawsuit against capping payments by the EU Commission.
Reporting season I - Siemens Healthineers and Ryanair figures
Tuesday
Karlsruhe - Euro Verdict - The Federal Constitutional Court (BVG) announces its judgment on the European Banking Union. It is about the establishment of a central banking supervision at the ECB and the modalities for the settlement of banks in difficulties. Later in the day, the judges negotiate the ECB's bond purchases again. The BVG had already dealt with the issue two years ago, but then called in the European Court of Justice, which decided that the bond purchases were legal.
Wiesbaden - German Inflation - The Federal Statistical Office presents figures on the development of consumer prices in July.
Reporting season II - business figures of Fresenius, FMC, Lufthansa, Bayer, L'Oreal, Apple, Procter & Gamble, Huawei, Pfizer, Eli Lill, Air Liquide, Siemens Gamesa, BP, Reckitt Benckiser, Merck & Co., AMD
Wednesday
Washington - Under pressure - The US Federal Reserve decides on monetary policy. Fed officials have announced a rate cut. A delicate decision for an independent central bank that was heavily attacked by the US president.
Luxembourg - Europe's weakness - The EU statistics agency Eurostat publishes a preliminary estimate of the development of gross domestic product in the euro area and in the EU in the second quarter.
Nuremberg - Jobs, Jobs, Jobs - The Federal Employment Agency presents new figures from the German labor market. Is the weak economy now having an impact?
Reporting season III - Business figures from Samsung, Osram, General Electric, BNP Paribas, Qualcomm, Swiss Re, Credit Suisse, Airbus, Air France-KLM
Thursday
Reporting season IV - Business figures from Siemens, BMW, Infineon, Zalando, ArcelorMittal, Société Générale, Evonik, AXA, Shell, General Motors
Friday
Reporting season V - Business figures of Allianz, Vonovia, ZF, Lanxess, Chevron, Exxon Mobil, Credit Agricole International Airlines Group, Royal Bank of Scotland, BT Group