Failure to adapt to geopolitical changes and a lack of investment have sent the nation into decline, analysts say
Germany’s decades of prosperity, which propelled it to become one of the world’s biggest economies, are coming to an end, Spanish daily El Pais claimed earlier this week, citing analysts.
According to figures released by the International Monetary Fund in July, Germany is forecast to be the only major economy not to grow this year, with its GDP expected to decline by 0.3%.
The German model hinges on cost competitiveness, technological leadership in industry, and geopolitical stability, and “all of them are gone,” according to journalist Wolfgang Munchau, as cited by the newspaper.
“What has now emerged is an energy price crisis, new geopolitical divisions and technological shocks that pose existential questions about the future of the model,” Munchau said, adding that the world around Germany has completely changed.
Since the early 2000s the country has enjoyed continual strong growth driven by high employment rates and foreign demand from fast-growing economies such as China. Germany’s manufacturing sector, the mainstay of the economy, has been flourishing since 2003, fuelled by cheap energy from Russia and low-cost labor from Eastern Europe.
Germany is expected to further rely on a massive level of exports and imports, “but the industries that were successful in the last two decades, namely the chemical and automotive ones, will not perform the same role in the future,” Clemens Fuest, director of the Leibniz Institute for Economic Research (IFO), told El Pais.
According to Carsten Brzeski, the ING chief for Germany and the Eurozone, China – while still importing German products – has also become a strong rival.
The expert added that pandemic-related challenges along with geo-political tensions have changed the world, but that Germany has also failed to invest and implement new reforms in time.
Moreover, Fuest noted, public and private investments are hampered by overly complex planning procedures, restrictive regulations and bureaucracy that should be simplified by the government.
