How Germany is trying to save its industry and economy

by time news

2024-12-17 07:40:00

Olaf Scholz no longer has a majority in the German parliament and now he no longer has your trust! Legislative elections can be organised, normally on 23 February. This political situation stems in part from a German economy in poor shape. Decipherment.

In recent decades it has often been said that the German economy is the locomotive of the German economyEurope. Today it is clear that it travels at a very low speed. This weekend, the Federal Bank ofGermany revised its growth forecasts for next year downwards, from 1.1% to 0.2%. It is no better for 2026, from 1.4% to 0.8%. This very weak growth is mainly due to the decline in exports. In October they decreased further, despite normally representing one of the main driving factors.

All this has real and concrete consequences on industrial employment, or on large-scale social plans. The most emblematic one, as you know, concerns Volkswagen. The automotive group intends to lay off several thousand people and close three production sites in Germany.

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Russian gas and structural problems

The main reason is that Germany is paying a high price for the ongoing war Ukraine. The conflict ended the era of ultra-cheap Russian gas in its energy mix. Result: Energy prices have exploded, which implies an increase in production costs and therefore, ultimately, prices. In front, the competition, particularly from China it doesn’t have this problem, so it takes advantage of the German problem to flood the market.

But beyond these trade tensions, there are also specific explanations for Germany’s state. It is mired in a series of structural problems that penalize its growth model. We will particularly highlight the aging population which is causing labor shortages. We must also highlight public underinvestment. And then this political situation worries private investors. This does not encourage them to come, believing that the conditions are not attractive.

Read alsoHow to explain the difficulties of European industry?

New contracts

To revive its economy, or at least save it, Berlin, out of pure pragmatism, is looking for new partners abroad. Two illustrations, the first with the countries of South America. The German Chancellery is a fervent supporter of the agreement European UnionMercosur. Germany sees this as a real opportunity to export its automotive, pharmaceutical and even machinery industries.

Berlin is also focusing on African states. Last year, for example, the Federal Ministry for Economic Cooperation presented a strategic plan forAfrica. The chancellor Olaf Scholz they had also increased travel to the continent.

There is therefore no doubt that the economy will be the theme of the electoral campaign for the legislative elections. With one of these key elements crystallizing the debates: the debt brake. Since 2016, new borrowing by the federal government has been limited to 0.35% of GDP, which today limits public investments. This rule could be revised to give greater flexibility with respect to public debt, because we understand that there is a lot to do to revive this German locomotive!

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