GERMAN ECONOMY

How to Get Off the Roller Coaster

Ein Mitarbeiter von BMW arbeitet am 10.04.2013 im BMW Werk in Regensburg (Bayern) an einem Auto. Foto: Marc Müller dpa [ Rechtehinweis: Verwendung weltweit, usage worldwide ]
The German economy is expected to grow 1.5 percent this year.
  • Why it matters

    Why it matters

    The Achilles heel of the German economy is persistently sluggish investment.

  • Facts

    Facts

    • Germany’s economy is expected to grow by some 1.5 percent this year and 1.25 percent the next.
    • The Policy Uncertainty Index shows that, since the global economic crisis of 2009, the political environment has not supported expectations necessary for an upswing in investments.
    • Germany’s chief export target region is not only economically fractured, but seriously threatened with political disintegration.
  • Audio

    Audio

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The spring round of German economic forecasts is over, and they point to the same projections across the board: Employment will continue to increase but at a reduced rate.

Domestic demand will dominate the economy, while net exports weaken slightly. And the German national budget will remain in the black despite additional burdens resulting from refugee policies.

All this will result in economic growth of 1.5 percent this year and 1.25 percent the next.

That’s not all that great, considering the boost resulting from low energy and raw material prices, as well as the European Central Bank’s ultra-expansive fiscal policies.

But it’s not all that bad either, considering the duration of this upswing. At any rate, without a clear direction for years, the economy is on a roller-coaster ride.

Germany’s chief export target region is not only economically fractured, but seriously threatened with political disintegration.

What needs to worry us is persistently sluggish investment — the Achilles heel of the German economy.

More extreme financial policy is not going to help here, and a financial policy that endangers solidity is also not going to help.

Impediments can be eliminated by investing in infrastructure for digitalization and mobility. But that is not the key to an upswing in investments. Germany already ranks high as a global business site because of its relatively good infrastructure. But that doesn’t create business — only business opportunities at best.

Another reason for the weak inclination of business toward new equipment and faculties is political uncertainty.

The Policy Uncertainty Index shows that, since the global economic crisis of 2009, the political environment has not supported expectations necessary for an upswing in investments. This is where global factors combine with European development into a burdening interplay of effects.

The outlook for Europe remains unchanged: mediocre. Germany’s chief export target region is not only economically fractured, but seriously threatened with political disintegration. Since the crisis years of 2008 and 2009, per capita income has no longer been converging.

What used to be self-evident throughout all of Europe’s earlier periods of integration no longer applies. In view of differing economic structures, as well as varying degrees of willingness to do something for competitive ability, there is no justifiable prospect that this will again succeed over the long term.

The balance of the global economy is shifting. Emerging countries are struggling with structural problems, overcapacity and costs that erode competitiveness. It is unclear whether, and in what time frame, big nations like China and Brazil will manage to switch to the fast lane and begin catching up more or less pain-free.

It’s a matter of breaking out of the “middle income trap” — and the transition from cost advantages in exporting to innovation-driven growth anchored in a domestic economy with sound institutions.

For now, the line of vision in the international division of labor has turned away from emerging economies and resource-exporting countries to established industrial nations.

German companies, for example, are taking advantage of new opportunities in the United States, pushing France out of the number one spot for German exports.

That is why the need for deeper trans-Atlantic cooperation, via TTIP, is all the more urgent. The equivalent agreement with Canada, CETA, has addressed the well-founded doubts and can serve as a blueprint. 

The way to a new path of economic momentum — off roller-coaster swings and away from danger — can only be opened through more flexible structures and intensive competition.

For that reason, we can’t allow ourselves to be blinded by moral hubris: We should not waste the historic opportunity for an more intensive trade partnership with the United States.

 

To contact the author: gastautor@handelsblatt.com

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