Farewell To German Economic Boom

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When he visits a semiconductor or electric car factory, Chancellor Olaf Scholz depicts a Germany leading its industrial transformation at full speed. “Insufficient”, answer bosses and experts who predict difficult times for the first European economy.

Having fallen into recession this winter, the German economy should end the year in the red, at the back of the pack of euro zone countries. The government is still the only one to expect growth in gross domestic product (GDP) in 2023, when the main economic institutes and the IMF now expect a decline estimated between 0.2 and 0.4%.

Inflation, rising interest rates, sluggish recovery in China, energy prices weigh on activity.

But the evil would be deeper: “we currently see the country facing a mountain of growing challenges”, was alarmed this week the president of the Federation of German Industry (BDI), Siegfried Russwurm.

“More and more companies, even in SMEs, are considering relocating part of their value creation outside Germany,” he warned at the annual congress of the Federation, which brings together the political elite. and German economy.

In the newspapers, the specter of a Germany “sick man of Europe” is back, referring to the period, at the beginning of the 2000s, when the country, weighed down by its lack of competitiveness and high unemployment, had inherited this qualifier.

It is to another period in recent history that Olaf Scholz, who came to power at the end of 2021, prefers to refer.

In an interview in March, he said he was convinced that the transformation needed to achieve climate neutrality by 2045 would allow Germany to “return to growth rates as in the 1950s for a while and 1960”, time of “economic miracle” for a country then in full reconstruction.

New miracle?

For the Social Democratic leader, the massive expenditure needed to install wind turbines, build electric cars, decarbonize steel production or chemicals, manufacture heat pumps replacing gas heating will create a virtuous circle.

But the scenario of a new golden age driven by energy transition and green industries leaves more than one expert skeptical.

Because this transition will first engulf billions of euros “to replace an existing stock of capital” – thermal with electric; coal by renewables — “at significantly higher costs,” Mr Russwurm replied this week.

“It will not bring us additional economic growth at first,” he observed.

“We will only reap the fruits of this transformation in the distant future, when we have actually succeeded in reducing greenhouse gases. In the short term, this will consume resources (…) and it will initially slow us down “, also explained also Timo Wollmershäuser, director of the Ifo economic institute, to the press this week.

Years of sluggish growth, with annual GDP increases of less than 1%, await Germany, predict the country’s leading economic institutes.

“Growth should be significantly lower during this decade than in the 2010s, associated with the country’s prosperity,” says Marcel Fratzscher, director of the DIW institute.

Not attractive

In addition to the energy transition project, there are structural weaknesses that are hampering economic performance: bureaucratic delays, delays in digital modernization and above all demographic aging which leads to a shortage of labor that companies are already feeling acutely.

“If the population declines for a long time, GDP will eventually not be able to grow either,” warns Timo Wollmershäuser.

With an economic model heavily based on industrial activity – which accounts for more than 20% of GDP – the country will also suffer from energy prices that are destined to remain permanently high, even if they have calmed down after the records reached. in the wake of the outbreak of war in Ukraine.

Russia has long been the country’s leading supplier of gas, delivered at favorable rates.

“Cost of energy, lack of skilled labor, bureaucracy: for us, producing in Germany is no longer attractive”, assured, during the Industry Congress, Ingeborg Neumann, president of the association German textile companies.

This article is originally published on arabnews.fr

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