2024-10-08 04:22:00
The economy is slowing down, many people are unsettled and are holding back on big purchases. What can be done about it?
Germany’s economy is falling behind. Instead of the growth expected in the spring, the federal government is now expecting a mini-minus in gross domestic product this year.
Why is that? How can the economic downturn be addressed? And how does the recently much-discussed bonus of 1,000 euros that long-term unemployed people who go back to work for at least a year fit into all of this? Jens Südekum, one of the country’s most important economists, gives answers in the t-online interview.
t-online: Mr. Südekum, the German economy is shrinking for the second year in a row. What’s going on there?
Jens Südekum: The economy is not going anywhere at all. All experts had actually expected an upswing in the fall because inflation was falling sharply and wages were rising at the same time. My forecast in the spring was also: People have more money in their pockets and are spending it, so consumption is pulling the economy up. But that doesn’t happen. And that puts a strain on many companies, for example car manufacturers.
Many people seem to be very unsettled – also because of the political cacophony on the important questions: What about electromobility? Is the combustion engine coming to an end? Isn’t it coming? Will there be cheaper electric cars to buy from China next year? For many, the rational response to these questions is to wait and see. This is the case when buying a car, but similarly with other purchases, such as converting your heating system to a heat pump. This is poison for the economy. Companies find it difficult to adapt to a future market and therefore invest less than they should.
Corporate investments have recently fallen sharply.
Correct. This is a dramatic collapse. The latest figures show a decline of 4 percent compared to the previous quarter. Uncertainty also plays a large part in this.
The federal government wants to do something about this and has presented the “growth initiative” in the budget. What can this legislative package do?
Overall, the package is good and solid. It contains a number of proposals that are long overdue, such as work incentives for older people who want to work longer. But we shouldn’t expect miracles either. Even if the 49 measures were implemented one-to-one, it will probably not be enough to stimulate the economy as much as would be necessary to get out of the economic trough.
Several researchers have calculated that the package could lead to a short-term growth increase of 0.5 percentage points. A realistic calculation?
Yes, these numbers seem realistic to me. In the first three years there could also be an increase of up to 0.9 percentage points in gross domestic product. But that’s not an economic miracle either.
Parts of the package are now being questioned again, most recently the citizen’s allowance of 1,000 euros for long-term unemployed people who take up a job and still have it after a year. What do you think of this proposal?
A big problem with citizen’s benefit is that for every euro that a citizen’s benefit recipient earns through work, the citizen’s benefit is reduced by one euro. So if you go to part-time work and top up your citizen’s benefit, you won’t have any more net money in your pocket. This is extremely anti-performance. Everyone agrees: Something has to change.
And what does the bonus have to do with it?
The bonus is a very simple and therefore good incentive to go to work despite the transfer withdrawal. Of course, you could also adapt the transfer withdrawal system as a whole, but that is complicated and expensive. Because this would mean that many more people would be entitled and there would be a lot of deadweight effects. The bonus is better: it is only aimed at long-term unemployed people. If it works, the state will easily save 25,000 euros in citizen’s money per person per year. And if it doesn’t work, if people don’t stay in the job for at least a year, then conversely it doesn’t cost anything. Economically it is very efficient.