The Bundesbank believes that the situation in the German economy is not as bad as the mood. However, a lot has to happen to keep the location attractive.
How to twist and turn it: The latest economic data offers little hope for the German economy in the short term. “German economic output is likely to shrink slightly in the third quarter of 2023,” writes the Bundesbank in its September monthly report published on Monday. Sluggish consumption, weak exports, stubbornly high inflation: a number of economic research institutes have recently reduced their expectations for the year as a whole, and Europe’s largest economy will fall into recession seems inevitable.
So is it true after all that the myth about Germany as the “sick man of Europe”? Bundesbank President Joachim Nagel recently told the “Handelsblatt” that he considers this to be “a misdiagnosis”: “We shouldn’t let “Made in Germany” be downplayed.”
Bundesbank: German economy overall still in a good position
Now the Bundesbank adds in its monthly report: “The German economy is still in a good position overall.” Thanks to the immigration of skilled workers from abroad, the effects of the aging of German society on the labor market have so far been limited.
The industry cushioned the shock of extremely high energy prices as a result of the Russian war against Ukraine “thanks to good earnings and financing conditions and temporary government aid overall.” The Bundesbank economists’ conclusion: “Despite the various burdens, the economy’s price competitiveness is still rather favorable on average.” In addition, the labor market remained stable “until recently, despite the currently subdued economic environment”.
But “broad pressure to act”
But at the same time the Bundesbank leaves no doubt that a lot has to happen to keep Germany attractive as a business location: there is “definitely pressure to act”. The list of tasks is long: affordable energy and restructuring the economy in the face of climate change, digitalization and faster approval procedures, for example when integrating foreign skilled workers or implementing investments. And: reduce dependencies – for example in the delivery of important raw materials or production in China.
“The state can contribute to making Germany more attractive as a business location by ensuring suitable framework conditions,” writes the Bundesbank almost succinctly. “Politicians are currently taking some steps in this direction. However, these must also be implemented and continued.”
Politics must strengthen Germany as a business location
In plain language: Instead of bickering between the SPD, the Greens and the FDP, a federal government is needed that will rebuild Germany at speed. “In terms of economic policy, it is now important to strengthen those location factors that you have control over – keywords education, infrastructure, bureaucracy, tax rate – and thus also to become more attractive for foreign skilled workers,” recently warned the head of economic development at the Kiel Institute for the World Economy (IfW). , Stefan Kooths. “The competition for the world’s talent is becoming tougher – making growth-enhancing policies that make the location more attractive for qualified immigration and investments all the more important.”
In the opinion of the Bundesbank, the federal government has taken a step in the right direction with its 10-point plan from Meseberg, but the resolutions are “not yet sufficient to overcome the challenges”. Chancellor Olaf Scholz (SPD) also wants to stimulate the economy with a “Germany Pact”: through faster approval procedures, for example in construction, tax relief for companies, more digital administration and accelerated procedures for the immigration of skilled workers.
“The Germany Pact and European initiatives to reduce bureaucracy are going in the right direction, but the projects could be more ambitious and, above all, they must be approached so consistently that the subsidies and relief reach the companies quickly and noticeably,” warned in the last week DIHK Managing Director Martin Wansleben.
A problem for Germany as an export nation: new relationships with raw material suppliers and trading partners do not develop overnight. According to the Bundesbank, almost half of the industrial companies in this country rely on critical intermediate products from China. 80 percent of them considered a replacement from other countries difficult.
Germany also has to fundamentally reorganize its energy supply – a lengthy effort. After all, the Bundesbank has not yet seen any evidence of widespread de-industrialization in this country due to the increase in energy costs.
Many economic forecasts now assume that the German gross domestic product (GDP) will be in the red for the whole of 2023. It looks like entrepreneurs and consumers need staying power. The Federal Ministry of Economics forecast in mid-September: “A noticeable economic recovery can be expected at the turn of the year 2023/24 at the earliest.”