Is the German economic crisis getting worse?
Ranked second among all the European economies, the German economy has undergone an unexpected downturn since 2019. Real wages are dropping; the automotive sector is collapsing; GDP growth has stopped; and resentment is growing.
Germany controlled the European economy for many years, and rapid growth improved living conditions. But this development has lately ceased somewhat abruptly. Unquestionably, the German economy has suffered greatly from the situation in Ukraine. Gas prices surged from disturbances to the supply, and they remain high even with some decrease. This is a major challenge for an economy largely depending on industrial output.
German industrial output continues declining even with the latest gas price decrease. It is today 15% less than it was in 2016. It also deviates 25% from its pre-trend level. Though the Ukraine crisis is unfortunate, it also emphasizes the horrible decision made to shut down nuclear power plants. This was taken without any logical alternatives. Germany had to revive coal-powered plants to meet demand for energy despite with policies toward investment in renewable energy. The rising energy prices have seriously hurt German business. German power rates exceed two times those of the United States.
Beyond the energy crisis, the German economic woes are abundantly evident in the automotive sector. Concerns about declining profitability and competitiveness have Volkswagen thinking about first closing German factories in 87 years. Declining exports to China resulting from reduced Chinese demand reflects China’s own economic difficulties. More importantly is domestic Chinese companies’ ability to undercut German cars.
Usually setting the standards, Germany’s strength was in high-tech mechanical engineering. In the times of batteries and electric cars, Germany’s competitive advantage is less significant. It’s fantastic in combustion engines. Although Volkswagen has heavily invested in electric vehicles, their impact has been little. Moving to software was seen as a mistake given minimal returns on investment.
A Chinese import like the BYD Dolphin would cost about €30,000. In 2023, the average price of an electric automobile in Europe will be €46,000. On domestic front, Chinese manufacturers are developing electric vehicles for as little as $10,000. Chinese enterprises have an unfair advantage from superior management just as much from subsidies.
From poor management strategies displayed by the diesel pollution problem, the German economy is experiencing various challenges. Business owners and staff have another tense relationship as well. Rising living costs have severed the once-strong relationship and caused decreased production and more strikes. For the economy, the train conductor strike alone now costs daily almost 100 million EUR.
Years of underinvestment have exposed infrastructural problems in Germany, hence aggravating economic stagnation and shrinking real wages. Unemployment still is rather high, more than 6%, especially in Eastern Germany. The economic crisis has driven increasing calls for government stimulus and investment. But rigorous financial constraints accompanied German unification. These cuts limited government spending. Significant cuts resulting from this hampered economic growth.
Germany has immense economic potential even if challenges still exist. It offers prospects to strengthen and revive its profile on the global scene. There is a turning point in the German economy. One must shift to increased public sector expenditure. Long-term energy needs call for this adjustment. One also has to advocate employment.
Categories Tags
Posted on German economy, Germany
Originally published at http://munaeem.de on September 9, 2024.
