As of: March 6, 2024, 2:58 p.m
By: Lars-Eric Nievelstein
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Germany is “no longer competitive,” said the economics minister, and industry regularly issues warnings.
At the same time, however, inflation and unemployment are falling.
How is the German economy actually doing?
Berlin – Just a few weeks ago, reports were circulating that Germany was back in third place among the largest economies.
The Federal Republic thus overtook the East Asian state of Japan, which is struggling with a weakening economy.
Japan, on the other hand, cited the weak yen and declining domestic demand as reasons, so it is by no means an effect of Germany's pure strength.
But does it really look as bad as the industry associations regularly report?
Inflation and energy prices are falling – where is the German economy?
The good news first: Inflation in Germany has reached its lowest level since 2021.
In February, consumer prices only rose by 2.5 percent compared to the same month last year, the Federal Statistical Office recently announced.
The inflation rate has not been this low since June 2021 (2.4 percent).
This means that inflation is moving significantly towards the long-term goal of the European Central Bank - which has been trying to achieve two percent for years.
Robert Habeck, Federal Minister for Economic Affairs and Climate Protection and Vice Chancellor at the Cologne literature festival LIT.COLOGNE.
It was said that Germany was “no longer competitive”.
How is the German economy actually doing?
© IMAGO / Guido Schiefer
Cheaper energy is primarily responsible for this.
Here, customers paid an average of 2.4% less than in February 2023. Compared to the annual average for 2023, the average electricity price for households fell by around eight percent at the beginning of 2024, said the BDEW Federal Association of the Energy and Water Industry.
And wages are also developing significantly more positively than a year ago.
The real wage index stood at 1.8 in the fourth quarter of 2023, increasing for the third time in a row.
The real wage is the earnings that employees can actually earn, even after inflation is taken into account.
It therefore shows the actual purchasing power of earnings.
Germany as a business location in danger – weak growth
Nevertheless, there is a sense of alarm in the economy and also in politics.
Finance Minister Christian Lindner ( FDP) told Handelsblatt
:
“Germany is falling behind because there is no growth.
The location is no longer competitive.” Urgent measures are needed to strengthen Germany as a business location.
Current growth forecasts only show growth of 0.2 percent for 2024, which makes the Federal Republic one of the worst performers in Europe.
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And job cuts can be observed across all sectors in Germany.
The electrical appliance manufacturer Miele had announced that it would relocate parts of its production to Poland, the software company SAP is cutting jobs, as are the automotive suppliers ZF and Bosch.
The situation is similar at Bayer AG and Deutsche Bank.
There is even talk of the “construction crisis” in housing construction.
The number of building permits is currently lower than it has been since 2012.
Fewer and fewer apartments are being built, even though demand is growing.
The high material costs and expensive financing deter many new house builders and investors, and commitments for new housing loans from banks and savings banks collapsed in 2023.
Declines of 30 to 40 percent were on paper here.
Associations are calling for political intervention
And then there are industries that had already warned that they would soon collapse without political support.
A prime example of this is the solar industry.
The manufacturers Heckert Solar and Meyer Burger had already reduced production here.
There is also an urgent need to reduce bureaucracy in Germany and reduce the tax burden, otherwise the business location would be seriously threatened.
There has also been talk of the “de-industrialization” of Germany.
The HDE trade association called for rapid implementation of the Growth Opportunities Act, which should address many of the sticking points.
However, many Germans don't notice this.
The situation on the labor market appears to be stable, their purchasing power is increasing, they can buy more and pay less for energy.
Trend reversal through interest rate reduction
The previously mentioned housing construction shows the fundamental problem particularly clearly.
During the Corona crisis, many industries were unable to keep up with demand, but now demand is the trigger.
It is increasingly missing.
The order books remain empty and capacity utilization falls.
A trend reversal can only be expected when the general conditions for citizens change.
As soon as the European Central Bank (ECB) lowers key interest rates, demand will increase again.
Gesa Crockford, managing director of Immoscout24, told
Handelsblatt
.