What Germany needs to kickstart its economy | DW Business

Summary

The German economy faces challenges like high energy costs, labor shortages, and slow innovation. However, there are signs of optimism with rising household consumption driving some growth. Manufacturing and construction sectors still struggle, but services and retail are improving. Experts call for tax cuts and energy reforms without long-term subsidies. Labor shortages remain a concern, even with new immigration laws. To stay competitive, Germany must embrace structural change, focus on innovation, and increase productivity, while carefully navigating geopolitical risks, especially in relations with China.

Takeaways

• 📈 Optimism in the German economy is increasing, driven by private household spending as incomes are rising faster than inflation.
• 🏭 Manufacturing is still struggling, with weak order books and companies not planning to expand production in the near future.
• 🛠️ The construction sector remains depressed, with low levels of housing investment and no clear signs of recovery.
• 💡 Service and retail sectors are showing improvements, though manufacturing continues to lag behind.
• 💼 High corporate taxes and energy prices are key concerns for businesses, with calls for reducing the 30% corporate tax rate to attract foreign investment.
• ⚡ Energy costs are a long-term challenge, and while subsidies are not a viable solution, boosting energy supply and infrastructure investment is critical.
• 🚀 Germany needs to encourage structural change by improving conditions for innovation and business creation rather than focusing on specific industries.
• 👷 Labor shortages remain a significant issue, with over 436,000 job vacancies, particularly in the transport, logistics, and automotive sectors.
• 🌍 Immigration laws have been made more liberal, but bureaucratic hurdles and cultural shifts are necessary to attract and retain foreign workers.
• 🔬 Productivity and innovation should be a key focus to overcome challenges such as labor shortages, decarbonization, and geopolitical tensions.

Q & A

What is driving the recent optimism in the German economy despite its challenges?

The optimism is largely driven by private household consumption. Rising incomes, which are growing faster than inflation, have led to increased spending, particularly in retail and some services sectors.

Why is the German manufacturing sector still struggling despite some economic improvements?

The manufacturing sector is struggling due to a lack of new orders, and companies are not planning to expand production. While there is slightly less pessimism than before, the overall situation remains weak.

What are the major issues plaguing the construction sector in Germany?

The construction sector in Germany is facing low investment levels, particularly in housing construction. This has been a persistent problem, and there is no sign of recovery in the near future.

How do business expectations differ across sectors in Germany, according to the survey?

In the industrial sector, expectations have slightly improved but remain cautious due to weak current conditions. In contrast, the services and retail sectors are seeing a more noticeable improvement, with pessimism receding.

What are the two major demands made by the BDI (a German industry group) to the government?

The BDI has called for the government to reduce energy prices in the long term and lower the 30% corporate tax rate, which they believe is discouraging foreign investment.

What is the stance on reducing energy prices and corporate tax in Germany?

While there is a clear case for lowering corporate taxes, reducing energy prices is more complex. The government cannot and should not subsidize energy in the long term. However, accelerating grid investment and energy supply could help lower prices.

What sectors in Germany are most affected by the country's labor shortages?

The sectors most affected by labor shortages are transport, logistics, and automotive, which are vital drivers of the German economy. Over half of the 436,000 open vacancies are in these sectors.

How does Germany's new immigration law aim to address labor shortages, and what challenges remain?

The new immigration law aims to attract more workers from abroad, but bureaucratic hurdles and cultural barriers, such as language, remain challenges. While immigration rules are relatively liberal, Germany needs to improve its infrastructure for welcoming foreign workers.

Why has Germany struggled to attract high-skilled digital workers from countries like the Baltics?

Germany faces strong competition from other countries like the UK and Scandinavia, which attract many skilled workers. Additionally, high wages in these countries and better infrastructure may be more appealing for migrants.

What is the strategy behind Germany's current approach to trade with China?

Germany is focusing on 'de-risking' rather than withdrawing from China. Companies are advised to diversify supply chains and manage their financial exposure to China. However, Germany continues to maintain trade relations with China due to the economic benefits.