Germany’s economy should not be underestimated

Berlin: The crisis has often been heard as a word for the German economy, but Germany has a strong foundation that makes experts believe in the strength of the EU’s largest economy. It has a chance to come back strong.

What makes Germany so special? Jörg Krämer, Chief Economist at Commerzbank, claims: “Germany is diverse.” He says that Germany has large global corporations that have their headquarters here. Almost even more important to him are the many small and medium-sized enterprises.

Krämer calls them the backbone of the German economy. “They are flexible, have created many jobs in the past and pay good wages.” These are often innovative companies that are global market leaders in their specialized sectors.

For decades, these companies have been able to take advantage of globalization. The motto was “just-in-time” production. Many – whether global corporations or mid-sized companies – have perfected this model. The problem is that it no longer works smoothly.

Energy has become more expensive, global supply chains have been disrupted. New competitors are entering the market, setting new standards.

“We see almost every day how the role of the superpowers is changing,” says economist Martin Lück. “This is of course important for many countries that are particularly involved in global trade.”

Germany is one of them. Therefore, it is not surprising that German industrial companies are now facing difficulties.

Many organizations and research institutes have become pessimistic in recent years. The OECD, the Organization for Economic Co-operation and Development, predicts that Germany will grow more slowly than any other industrialized country by 2025.

Bundesbank President Joachim Nagel believes that at least a small increase is possible this year. “For the German economy, the end of the long crisis period is near,” he said. But the situation remains challenging.

What is happening now, however, is not so unusual. “There have always been economic upheavals and rivalries,” writes Frankfurt-based economic historian Werner Plumpe. You don’t have to look that far back: In 2008/2009, there was the global financial crisis. In 2012, the euro began to falter.

Later, the effects of the coronavirus pandemic devastated many companies. Now, growing trade conflicts are becoming a problem. Crises are part of the economy and processes. Companies react in different ways to crises, economic models are always tested. They are now reorienting and reviewing processes. And such processes are not easy and affect production but also employment.

Germany has decided to make a lot of investments in the economy, but is that enough? Economists say we can learn from other countries in such deep change processes. This includes, for example, the courage to try new things.

“Openness to technology is also important,” says Chris-Oliver Schickentanz of Capitell AG. “In Germany, we always talk too much, too quickly about the risks of new technologies, instead of first considering the opportunities offered by new technologies such as artificial intelligence. There must be reforms,” demands Holger Schmieding of Berenberg Bank.

“We need to invest more in infrastructure. We can learn, for example, to be less cautious about regulations.”

Other countries are simply faster when it comes to creating better framework conditions for companies. Commerzbank economist Krämer mentions the Baltic states, “which have managed to develop a pioneering role in digitalization in a relatively short period of time.”

The world is becoming more complex and fragmented, rivalries are becoming more visible. However, Germany has a good chance of emerging stronger from these change processes. This is due, among other things, to the fact that it has a foundation on which to build. This includes the education system, as well as well-trained specialists in the country and, as before, good basic research at universities.

With the federal government’s fiscal package and debt brake reform, companies should once again have incentives to invest.

As for the tariff dispute with America, expert Krämer says: “If the Americans are no longer attractive for investment, where can investment be made? This is where Europe and Germany in particular come into play. That is why we must be cautiously optimistic.” What makes Germany so special is its ability to adapt under great pressure and difficult conditions, thus adapting to external challenges.