In times of turmoil, Germany’s economic excellence can prove to be a curse. With its dependence on exports, the country is uniquely sensitive to geopolitical crises.
According to a recent report by the Federal Office of Statistics, foreign trade played a significant role in the slight decline in economic output in the second quarter. In light of crises around the globe, on Thursday the Association of German Chambers of Commerce and Industry, known as the DIHK, lowered its prognosis for exports in the current year once again. Instead of a 4.5-percent increase, as expected at the beginning of the year, the group now predicts a 3.5 percent growth in exports “at best.”
That means “German exporters will be making about €11 billion ($14.7 billion) less than assumed,” said DIHK trade expert Volker Treier. “That puts about 100,000 jobs in Germany at risk.”
In addition to the Ukraine crisis, the deteriorating situation in a number of emerging economies, such as Turkey, South Africa and Indonesia, is also affecting the German economy.
If the conflict over the Ukraine intensifies between Russia and the West, even the revised prognosis will not hold up, Mr. Treier noted.
“We are on a dangerous path,” he warned, and promptly lowered his growth forecast for the German economy from 2 percent to just 1.5 percent.
In addition to the Ukraine crisis, the deteriorating situation in a number of emerging economies, such as Turkey, South Africa and Indonesia, is also affecting the German economy. The withdrawal of international capital, now that the U.S. Federal Reserve Bank has introduced a change of course and investments in the United States are becoming attractive once again, is having an impact on these countries.
“All in all, the recovery of the global economy has been deferred,” said Mr. Treier.
Notwithstanding the current weak phase, economists believe that full employment in Germany is possible in the long term. According to an analysis by the Institute for Employment Research (IAB), this will require additional efforts to reform Germany’s education system and its labor market policies. Most of all, the analysis states, Germany will have to improve its integration and qualification of uneducated young people.
“The policy of full employment has to be geared to the long term, irrespective of current economic fluctuations,” said IAB labor market expert Enzo Weber. “If the necessary conditions are created, unemployment could decline to 2 to 3 percent in the long term,” he predicted.
That would translate into only a million people being out of work, compared to about three million today.
Translated by Christopher Sultan