- Germany’s economy has stagnated, facing long-term structural issues.
- The upcoming February 23 election will be crucial for shaping the future.
- Businesses cite excessive bureaucracy and lack of government direction.
- Energy costs have soared due to the Russia-Ukraine conflict.
- Competition from China has hurt German exports.
Germany, Europe’s largest economy, is at a crossroads. Once known for its industrial strength and reliance on cheap natural gas from Russia, the country is now mired in stagnation. Its economic growth has been flat for the past five years, leading to a sense of uncertainty. The upcoming national election, set for February 23, 2025, will determine how the country tackles its economic malaise.
The main challenge facing Germany’s next government is finding a new business model to replace the one that has failed. Experts and business leaders agree that the previous model, which relied heavily on exports to China and cheap energy, is broken. Rising energy costs and increasing competition from China have dealt a severe blow to German industries.
Internal Challenges
Germany’s economy faces several internal challenges. Bureaucracy, a shortage of skilled workers, and slow digital adoption are major factors contributing to stagnation. Klaus Geissdoerfer, CEO of EBM-Papst, an industrial fan maker, is concerned about Germany’s competitiveness. “We have bright talent in Germany. We have good companies, but at the moment we don’t have the awareness on the political level,” he said.
EBM-Papst, a global industry leader with annual revenues of 2.5 billion euros, has seen a decline in its home market. Their heating technology division reported an 18.7% drop in sales. The decline was due to confusion over new laws that encouraged replacing gas furnaces with electric heat pumps. Geissdoerfer noted that the complexity of these laws confused consumers, delaying necessary upgrades.
Energy Crisis and International Pressures
On top of domestic issues, Germany has faced significant challenges from international events. The Russia-Ukraine war disrupted the supply of natural gas, forcing the country to look for alternative sources of energy. As a result, electricity prices have surged, making it much more expensive to produce goods compared to other countries like the United States and China.
The Mecanindus-Vogelsang Group, a metalworking firm that produces precision parts for the automotive industry, noted that energy costs in Germany are more than double those in the U.S. “To avoid deindustrialization, which is already taking place, we urgently need internationally competitive energy prices,” said Ulrich Flatken, CEO of the company.
Furthermore, China’s growing industrial capacity and government subsidies have hurt Germany’s export markets. During the 2010s, China was a major market for German machinery and automobiles. However, with Chinese companies now producing similar products at a lower cost, Germany has seen its export revenues decline.
The Mental Toll: Complacency and Pessimism
Marcel Fratzscher, President of the German Institute for Economic Research, argues that Germany’s economic slowdown can be partly attributed to complacency during the boom years. “They enjoyed the success of the 2010s and they have been too slow in understanding that they need to change and adapt,” Fratzscher said.
As the economy stagnates, there has been a noticeable shift in public sentiment. “Mental depression” has taken hold, with widespread pessimism across industries and among citizens. Business leaders are reluctant to invest in the face of such uncertainty, and this hesitancy is exacerbated by the political gridlock that has hindered decisive action.
Germany’s Path to Economic Revival
Germany’s next government must tackle key areas to revive the economy. Many business leaders and economists agree that easing constitutional debt limits would allow for more public spending. Investing in infrastructure and education would be a good starting point. These efforts could help Germany shift toward industries like green energy and digital technologies, essential for long-term growth.
Fratzscher also pointed out the need for a change in mindset. He said that Germany’s old method of consensus-driven decision-making has slowed reforms. “We need to be much faster on economic transformations,” he emphasized. This shift in approach is crucial for keeping up with the times.
The pressure is on. If the next government doesn’t find a way to spark growth, Germany risks falling behind globally. The February 23 election will be a defining moment. It will determine whether the country can regain economic momentum or continue struggling in stagnation.
Germany’s economic decline stems from both internal inefficiencies and external challenges. To overcome these, the government must embrace reform and support innovation. With the right leadership, Germany has the chance to reclaim its position as a global industry leader.