As of: April 4, 2024, 11:46 a.m
By: Max Schäfer
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The German economy is weakening. Politicians often blame the energy crisis. An analysis by IMF economists sees the problems elsewhere.
Munich - Lockdowns in the corona pandemic, energy crisis as a result of the war in Ukraine: the economy in Germany was confronted with two crises relatively quickly one after the other. In particular, the interim high energy prices, inflation and high interest rates in the fight against inflation caused a weak economy - and a shrinking economy in 2023. But these temporary factors are not the biggest problem facing the German economy. At least that is the result of an analysis by the International Monetary Fund (IMF).
Accordingly, it is not the consequences of the energy crisis alone that are responsible for the weak economic growth in Germany, but rather a combination of temporary and structural problems. The IMF cites high energy prices as temporary factors, which contributed to low purchasing power and weaker growth. In addition, the European Central Bank's high interest rates in the fight against inflation have put a strain on housing construction and other interest-sensitive areas.
IMF economists see improvement in the short-term problems of the German economy
The IMF now sees Germany on the right track again. “The good news is that these temporary headwinds should gradually ease over the next one to two years,” the experts write in their analysis. They see a number of positive trends.
The IMF sees the debt brake as an obstacle to investment in Germany - and therefore a problem for the economy. (Archive photo) © Christophe Gateau/dpa
Gas prices have now fallen. The trading conditions index is at the level before the energy crisis. The trade surplus is also increasing again and, at 4.3 percent of gross domestic product, is again above the average of the last two decades. Experts expect it to continue to rise.
IMF sees long-term structural problems for the economy in Germany
However, the IMF also has bad news for Germany. Two structural factors are a long-term burden on the economy. “The bad news is that a more fundamental structural headwind – sluggish productivity growth – is likely to persist without reforms,” the analysis says. In addition, the aging of the population will accelerate significantly.
The gross domestic product per capita will come under pressure “as there are fewer workers for every pensioner,” warns the IMF. The aging of society will lead to higher social contributions and lower pensions. In addition, demographic change would mean that more workers would switch to the healthcare sector - which is why they are missing in other sectors. The labor shortage could deter investors.
IMF cites migration and greater involvement of women as a means to combat the shortage of skilled workers
According to the IMF economists, more migration to Germany can be an effective means of combating the shortage of skilled workers. Above all, Germany should make it easier for women to increase their working hours. There are 2.3 million fewer working women than men. Women were also five times more likely to work part-time. The IMF concludes: “Increasing access to reliable childcare and reducing taxes on second earners for married couples could help close these gaps.”
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In addition, according to the IMF, an increase in “insufficient investment” in infrastructure is “urgently necessary”. It declined in the 1990s and has since then barely been enough to maintain the substance. Germany is at the bottom of the advanced economies. In addition, money planned for investments would not be spent.
IMF economists are calling for a reform of the debt brake
As a solution, the economists at the International Monetary Fund are proposing a reform of the debt brake. The scope for debt could be expanded to one percent of gross domestic product. Alternatively, the analysis calls for mobilizing more revenue and reforming spending. The analysis is likely to further fuel the dispute over the debt brake within the government between Finance Minister Christian Lindner and Economics Minister Robert Habeck.
According to the IMF, another obstacle to investment is the bureaucracy in Germany. This “continues to prevent both investment and the founding of new companies”. The economists cite the long approval times for wind farms as an example. Additionally, it takes 120 days to obtain a business license, which is more than double the OECD average.
Digitalization could accelerate the processes, the experts explain in their analysis. “Germany is facing major economic challenges, but also has political levers to overcome them and secure a better economic future,” explain the economists.
Warnings of “de-industrialization” in Germany are exaggerated – according to the IMF
The IMF also has good news for Germany. The authors of the analysis contradict voices that believe that Germany's business model is “irreparably damaged” because its previous strong economic growth was based on the import of cheap Russian gas.
The warnings of “widespread deindustrialization” are also “exaggerated.” They admit that energy-intensive sectors such as the chemical, metal and paper industries have shrunk. However, these still make up four percent of the economy. In contrast, they point to the growth in car production and the commitment of German car manufacturers in the area of electromobility. VW and BMW would have accounted for more than ten percent of the global sales market in 2023. In general, the industry has adapted to the energy crisis and supply chain problems. (ms)