There was commotion on Thursday among players in the German economy: the political instability triggered by the fall of Olaf Scholz’s coalition added to the slump in the industry, requiring rapid decisions to emerge from the crisis.
“Reforms for growth now – no time for political mud fights”. This plea from the machine tool manufacturers gathered at the conference sums up the feeling of the business community.
From automobiles to banks to chemicals, economic players believe that we must act quickly to prevent the economy from sinking further. If possible by accelerating the timetable for early legislative elections which could be held in March.
“The continued uncertainty over who governs Germany and with what program is harming the country and the economy,” underlines the powerful industry federation (BDI)
The geopolitical context, with the wars in the Middle East and Ukraine as well as the election of Donald Trump as president of the United States “increase this uncertainty”, explains the group of automobile manufacturers (VDA).
New elections could put an end to the country’s current “paralysis”, assures Carsten Brzeski, economist at ING.
– Industrial crisis –
Time is running out because the German economy, long the driving force of Europe, is threatened with recession for the second year in a row.
The cascading social plans announced by the industrial giants – the automotive equipment manufacturers Bosch, Schaeffler, ZF, Continental, the chemists BASF and Bayer – are symptomatic of the crisis.
The announcement in September of potential factory closures at Volkswagen in Germany created a tsunami in the country of the automobile.
Another illustration of the malaise: the cancellation of several projects to install semiconductor factories in Germany this year, such as those of the Americans Wolfspeed and Intel, which were to benefit from billions of euros in government subsidies.
– The economic model in question –
The causes of the crisis are multiple, particularly the loss of price competitiveness. Key sectors like steel and chemicals are being hit by soaring energy costs following Russia’s invasion of Ukraine, when they were once supported by cheap Russian gas.
Furthermore, China, once the “workshop of the world” and a simple market for German products, has become a direct competitor in several areas where Germany was a leader, such as automobiles, steel, chemicals and machinery. -tools.
Another major challenge is the shortage of qualified labor, exacerbated by the aging population. In 2024, this shortage is expected to cost German companies 49 billion euros, according to the IW economic institute.
As a result, Germany continues to lose competitiveness on the international scene, now ranking 24th in the latest world ranking of the most competitive economies, compared to 6th place in 2014, according to the Swiss private university IMD.
Among the black spots are heavy taxation, bureaucracy and infrastructure considered mediocre.
Industrial production between July and September was 1.9% lower than in the previous three months.
– A frozen budget and laws –
The federal state budget for 2025, which crystallized tensions and led to the implosion of the tripartite coalition around Chancellor Scholz, was due to be completed in mid-November. This deadline is now unlikely.
If the budget is not adopted due to lack of a majority in Parliament, provisional management will be put in place from January, freezing expenditure which is not strictly necessary to operate the State.
“Our businesses need support – and immediately,” Chancellor Scholz insisted on Wednesday evening. Economic circles are sad to see that the “growth initiative” announced by the government in July, with a package of measures such as improvements in investment depreciation, a reduction in bureaucracy and more incentives at work, has not yet been implemented.
The government estimated that these measures could add more than half a point of growth next year. Promised relief for businesses regarding the law on supply chains, a bogeyman in their eyes, is also awaited.
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