Economic situation: gloomy prospects for the German economy

Economic situation: gloomy prospects for the German economy

Germany is emerging from the crisis more slowly than hoped, says Habeck. This has many external causes. But there are also many home-made problems.

Germany is in a growth crisis – and the outlook for the economy is bleak. The German economy is in “difficult waters,” said Federal Economics Minister Robert Habeck (Greens) on Wednesday in Berlin. “We are emerging from the crisis more slowly than hoped.” Habeck presented the annual economic report. The government only expects mini-growth of 0.2 percent this year. In the autumn forecast, she expected an increase of 1.3 percent. The government is also warning of poor growth prospects for the coming years.

Economy in difficult situation

Last year, Europe’s largest economy slipped into recession. Habeck said that two years after the start of the Russian attack on Ukraine, the war continues to weigh on the German economy – also because of its previous heavy dependence on Russian energy supplies.

Further reasons for the weak growth: The strong German export economy is suffering from a weak global economy. The increased interest rates have also led to less investment – this is putting a strain on construction in particular. Habeck also cited above-average sickness levels and federal austerity measures as a result of a budget ruling by the Federal Constitutional Court.

Inflation is weakening

After all: there is also good news. Inflation has been tamed, said Habeck. The increase in consumer prices is expected to fall to 2.8 percent this year. In recent years, inflation has eaten up wage increases. However, wage increases this year would be above the inflation rate. The expectation is that employees will also spend the money and thus stimulate private consumption. Habeck also referred to uncertainties among the population about how the economy will continue – and how high the next gas or electricity bill will really be.

Associations: Germany is becoming less and less competitive

Business associations complain that Germany’s companies are becoming less and less competitive internationally – due to a high tax burden or high energy costs compared to other countries. Habeck spoke of problems that had accumulated over many years. Specifically, it is about a partially dilapidated transport infrastructure, deficiencies in digitalization, for example in administration, excessive bureaucracy, problems in the education system – and the increasing aging of society.

“The biggest structural problem is the gap in skilled workers and workers,” said Habeck. “Every corner and edge is missing.” There are officially 700,000 vacancies reported in Germany, but the number of unreported cases is much higher.

The shortage of skilled workers is also one of the reasons why the government is warning of low economic growth for the foreseeable future. For the years up to 2028, annual “potential growth” of only 0.5 percent is expected. However, Germany cannot afford continued weak growth, it is said with regard to prosperity.

Habeck wants “reform booster”

Habeck made it clear that things had to be changed. “The situation is extremely challenging.” The minister wants a “reform booster”: “We have to do more.” In other words: reduce bureaucracy more quickly and combat the shortage of skilled workers more effectively. Habeck said that voluntary longer working hours in old age should be paid extra and immigration from abroad should be accelerated. There is also an urgent need to discuss why there are 2.6 million young people without a professional qualification. The government is also examining incentives to increase women’s employment. The report also mentions paid time off after the birth for the mother’s partner in order to promote the compatibility of family and work – a “family start time”.

A small package

A Growth Opportunities Act has already been passed in the Bundestag, which, among other things, provides tax relief for companies. But the Federal Council blocked the law due to loss of revenue for the states. In the mediation process, the volume of relief has already been reduced from the previously planned seven billion euros annually to 3.2 billion euros. Before a meeting of the mediation committee of the Federal Council and Bundestag on Wednesday evening, it was also unclear whether there would be an agreement. Because the Union only wants to agree to the law if the SPD, Greens and FDP waive the abolition of the tax relief for agricultural diesel, which the Bundestag has already decided on.

But even if the Growth Opportunities Act passes, it will probably not be enough to really stimulate growth. Habeck has already proposed a debt-financed special fund with a much higher volume than in the Growth Opportunities Act, for example for tax credits – but the FDP rejects more debt. Habeck said that one had to concentrate on what was united: getting the location afloat within the debt brake.

Finance Minister Christian Lindner (FDP) spoke out in favor of an “economic turnaround”. He would be happy to talk to the Union about corporate tax reform. “So that you can make this demand credibly, the Union should start by agreeing to the Growth Opportunities Act.”

Business is losing patience

The general manager of the German Chamber of Commerce and Industry, Martin Wansleben, said that Germany as a business location urgently needs better framework conditions – such as less bureaucracy, a lower tax burden and faster integration of migrants. “There is no lack of good suggestions. Politicians must not just talk about improving the location conditions, but must finally take action.”

Annual economic report

Source: Stern

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