Is Germany's Economy Collapsing?
Hello dear friends, Happy Saturday!
The topic this post is going to cover is Germany's economic and political state.
Germany has been one of the biggest economic players in the world. "Made in Germany" was seen as a tag for outstanding quality and status. In recent years though, the German economy has been struggling. Even Volkswagen, one of Germany's biggest and most known companies, has announced downsizing in form of layoffs and production reduction.
What is the current outlook?
There's a 0.2% GDP growth forecast for 2024 which is beating last years -0.3% growth which technically means the country narrowly avoids a recession.
Sources such as the German Chamber of Commerce and Industry (DIHK) expect no growth for the following year (2025).
Even though this might not seem bad, the real GDP is probably shrinking compared to the nominal GDP since the 0.2% growth is not overcoming Germany's 2.2% inflation rate as well as other factors.
Furthermore, current unemployment is at 6% showing a growth to last years 5.7%. According to estimates, this percentage will probably rise even further in 2025.
Besides, current politics only offers uncertainty for German companies as the elections year are coming closer.
A survey by the DIHK (German Chamber of Commerce and Industry) including 25,000 companies concludes that many companies are pessimistic about growth next year with some even thinking it’s going to get worse. Across all sectors, 26% view their current situation as good while 25% view their situation as bad.
Companies in the industry sector answered even worse with 35% of companies rating their situation as bad.
Arthur Sullivan
Layoffs
Many German companies are planning to reduce their workforce.
As an example, German Fortune 500 companies announced plans to layoff over 60,000 workers. This includes companies such as Bosch, Siemens and Deutsche Bahn (DB) as well as many more.
In general, the automotive sector is one of the most struggling sectors in Germany at the moment. Volkswagen is even planning to shut down factories as its operating profits are decreasing. This of course is due to many factors such as China taking a big portion of the EV market with its huge BYD company but also due to rising energy costs.
Overall, around a quarter of German companies are planning to reduce staff while only 10% are planning to hire more. This highlights a significant circumstance in the economy.
Ryan Hogg
Hanna Ziady
Why is this happening?
There are many factors for the current challenges the economy is facing. One of these is definitely the huge energy costs. About half of all companies report, that the current energy situation in Germany is a great challenge. Energy prices in Germany are reportedly one of the highest in the world.
Particularly the Russia-Ukraine War and the sanctions resulted in energy prices skyrocketing with a big chunk of Germany's population struggling to stay above poverty back in 2022.
Another reason is Germany's exit out of nuclear energy. This again resulted in struggling across the entire economy as prices rose.
Talking about money, we cannot forget taxation. Germany, again at the top, has one of the highest tax rates in the world. This is due to income tax and double taxation as well as many other taxes.
Corporate tax tends to be around 30% on average with average income tax tending to be around 37%. If only taxation was that simple. In addition to that, there's a sales tax, a church tax and many other (smaller) taxes.
Moreover, many companies just cannot keep up with the competitive market as China surpasses them while taking on more and more market share across many sectors.
Impact on Europe
Germany has been and still is Europe's biggest economy and manufacturer. A weak economic Germany would take a toll on the entirety of Europe.
This draws attention to Europe's struggles and its worsening economic challenges.
China is replacing Germany as a goods manufacturer in many sectors such as the automotive industry and the machinery and equipment sector.
As a result, the EU increased tariffs up to 45% on Chinese EVs and more as a response to persuade Europeans to buy European products to strengthen the EU market and weaken Chinese influence.
Is Germany's economy collapsing?
Even if the outlook may not look good, Germany's economy is not (yet) collapsing. It only indicates that the economy is dealing with difficulties and challenges.
Germany might slide into a recession in the future but it's still showing signs of "resilience" and "uncertainty" as mentioned by the DIHK.
Furthermore, the oncoming elections might prove profitable for the economy as a lot may change.
All in all, the German economy will deal with lots of challenges and problems over the next few years. There may be larger set backs, but there definitely is a chance for improvement in the future. Germany is still the 3rd biggest economy in the world with a lot of influence being decades ahead for most countries.
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Have a wonderful day!
Raphael