Economic Boom

Who's talking about an economic crisis?

Zentrum für Regenerative Therapien der TU Dresden
In high demand: skilled workers. Source: Jürgen Loesel/DPA

Only Germany, it seems, could be worried about all-time high exports and employment, and about companies being so optimistic about their business prospects. Most other Europeans would love to have those concerns.

Germany is in its fifth consecutive boom year with annual growth rates of around 2 percent. Business sentiment hit a record high of 117.5 points in November from 116.8 in October, according to the Ifo Business Climate Index, Germany’s most prominent economic indicator. Export expectations also scored a new record high in engineering and metal-goods production, with 40 percent of mechanical engineering companies expecting their exports to increase in the months ahead, according to Ifo.

During that time, employment figures have also gone only in one direction – through the roof. The economic boom has sharply spurred employment. But there is a genuine worry here: The longer it lasts, the more visible becomes the country’s growing labor shortage, which threatens to become a brake on growth.

“The limiting factor of production in Germany is the workforce potential.”

Michael Hüther, director of the Cologne Institute for Economic Research (IW)

Many German companies are desperately looking for personnel. The Ifo Employment Index, calculated exclusively for Handelsblatt, rose to 113.2 in November from 112.0 in October. Yes, that too is a record high. For the index, the economic research institute monthly polls about 9,500 companies about their employment intentions. Since the index was launched in 1991, the willingness of manufacturers and retailers to hire people has never been stronger. The same applies to builders, thanks in large part to super low interest rates. “Every fifth construction company could accept more orders if it could fill its vacancies,” Ifo market researcher Klaus Wohlrabe told Handelsblatt.

Other experts warn of labor shortages dampening investments. “The limiting factor of production in Germany is the workforce potential,” said Michael Hüther, the director of the Cologne Institute for Economic Research (IW). Of the nearly 2,900 companies surveyed by the institute, every second one claimed that the lack of skilled labor limited production options and was a barrier to investment. The construction of a new assembly line, many argued, is of no use if there are no specialists to monitor them. According to the IW survey, 41 percent of companies plan to expand their workforce in the coming year, with only 10 percent planning fewer employees.

The number of job openings speaks for itself. There were nearly 1.1 million vacancies in the third quarter, or 174,000 more than in the same period the year before, according the Institute for Employment Research (IAB). The domestic labor market, according to Mr. Hüther, is largely exhausted. The manufacturing and logistics sector reported the greatest demand for people in the so-called STEM (science, technology, engineering and mathematics) professions, who continue to be a hot commodity in technology-driven Germany. Academics from other countries who immigrated to the country have helped stem the widening labor shortages in scientific and technical fields but have not fully filled the gap.

Further economic growth, something every country likes to see, could actually compound the situation. The IW institute forecasts 2.5 percent growth for 2017 and 2 percent for next year. Many German factories are already operating at capacity, according to the institute, with about a third of those polled speaking of being overloaded. And of these, nearly two thirds cite labor shortage as the problem.

As rosy as the business outlook appears in Germany, some experts warn of other possible dampers. Top of the list is the political impasse in Berlin, as Chancellor Angela Merkel struggles to form a new government after the September 24 elections. “Obviously, a new unkown variable has now been added to the formula of continued strong German growth,” Carsten Brzeski, the chief economist of ING Gemany, wrote in a research note.

Yet despite the current political uncertainty, most economists, including Mr. Brzeski, remain upbeat. “Somehow, the current situation in Germany is an excellent illustration of a phenomenon, which has characterized the entire euro-zone throughout the year: buoyant confidence and strong economic growth goes hand in hand with political uncertainty and instability. In our view, the dichotomy can easily continue in 2018, yielding another strong year for the German and euro-zone economy.” That is, until the lack of workers finally puts a stop to it.

Frank Specht covers politics and economics from the Berlin office. John Blau is a senior editor with Handelsblatt Global. To contact the editors: specht@handelsblatt.com and blau@handelsblatt.com

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