The German economy is hardly likely to break free from stagnation this year either if location problems are not dealt with soon through economic policy reforms. The ifo Institute then expects barely perceptible growth of 0.4 percent.
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'Germany is going through by far the longest phase of stagnation in post-war history. It is also falling behind considerably in an international comparison,' says Timo Wollmershäuser, Head of Forecasts at ifo.
If no countermeasures are taken, the ifo researchers fear that manufacturing companies will continue to relocate production and investments abroad. Productivity growth would also remain weak, as value added and employment in highly productive industries would be replaced by value added in service sectors with low productivity growth.
However, if the right economic policy course is set quickly and reliably, investing and working in Germany would become more worthwhile again, making it possible to also achieve growth of a good one percent. The structural change would not only cause old production technologies to disappear, but also new ones to be created in the manufacturing sector.
In 2024, the price-adjusted gross domestic product was only slightly higher than in 2019 before the outbreak of the Covid-19 pandemic. This means that the German economy has now been treading water for five years. Digitalization, decarbonisation, demographics and deglobalisation go hand in hand with structural changes in the German economy, which have been noticeably accelerated by the crises of recent years. In an international comparison, Germany is hit particularly hard by these changes.
'Compared to other locations around the world, the burden of taxes, bureaucracy and energy costs on companies is high, the renewal of the digital, energy and transport infrastructure is progressing more slowly, and the shortage of skilled workers is more pronounced,' says Wollmershäuser.
That was why manufacturing had become noticeably less competitive and German goods exports were becoming increasingly decoupled from global economic development, according to Wollmershäuser. Investment decisions were being made to the detriment of Germany as a production location.
In addition, China in particular had caught up in the production of important technologies, especially in automotive and mechanical engineering, and developed from the world's extended workbench into a serious competitor.
As a result, German companies were losing global market share for products in which they had been market leaders for decades, according to the Head of Forecasts at ifo.
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