Olaf Scholz no longer has a majority in the German Parliament and now he no longer has its trust! Legislative elections will be able to be organized, normally on February 23. This political situation stems in part from a German economy in bad shape. Decryption.
It has often been said in recent decades that the German economy is the locomotive ofEurope. It is clear today that it is traveling at very low speed. This weekend, the Federal Bank ofGermany revised its growth forecast for next year downwards, from 1.1% to 0.2%. It is not better for 2026, from 1.4% to 0.8%. This very weak growth is due in particular to the fall in exports. In October they decreased further, although they are normally one of its main drivers.
All of this has real and concrete consequences for industrial employment, namely 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 war in 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. Opposite, the competition, particularly from China does not have this problem, so it takes advantage of the German problem to flood the market.
But beyond these trade tensions, there are also explanations specific to the state of Germany. It is mired in a series of structural problems which penalize its growth model. We will particularly note demographic aging 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.
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New contracts
To revive its economy, or at least save its economy, Berlin, out of pure pragmatism, is looking for new partners abroad. Two illustrations, first with the countries of South America. The German Chancellery being a fervent defender of the agreement European Union – Mercosur. Germany sees this as a real opportunity to export its automotive, pharmaceutical and even machinery industries.
Berlin is also banking on African states. Last year, for example, the Federal Ministry for Economic Cooperation presented a strategy plan forAfrica. The chancellor Olaf Scholz had also increased travel on the continent.
There is therefore no doubt that the economy will be a campaign theme for the legislative elections. With one of these key elements which crystallizes the debates: the debt brake. Since 2016, new loans taken out by the federal government have been capped at 0.35% of GDP, which today limits public investments. This rule could be revised in order to give more flexibility with regard to public debt, because we understand, there is a lot to be done to revive this German locomotive!
