Germany’s next government faces three major economic challenges


Reuters file photo: Workers at the Volkswagen assembly line in Wolfsburg, Germany, wear protective masks, April 2, 2020.


Written by Michael Ninaber and Renেনে Wagner

BERLIN (Reuters) – Chancellor Angela Merkel has plunged Germany into many crises over the past 16 years, but she has also left a mixed legacy and failed to address some of the deepest structural problems in Europe’s largest economy.

Despite the “golden decade” of uninterrupted growth and budget surpluses, most economists agree that Germany has neglected its public infrastructure and invested very little in digitization.

The IFO Institute predicts that the economy will grow by a whopping 5.1% in 2022, the strongest rate since economic recovery in the early 1990s after the reunification of Germany.

The outlook for unusually strong growth is largely due to the effects of recovery and capture from the Covid-1 pandemic epidemic. But under the glossy surface, things look less bright.

If Germany wants to avoid further setbacks in the next few years, the incoming coalition government must address these three challenges:


Under Merkel’s watch, Germany lags far behind in terms of digitization. This was the result of a survey published in September, shortly before the Berlin-based European Center for Digital Competitive Elections.

Germany is ranked 1st in the Group of 20 Top Industrialized and Emerging Countries (G20), followed by Japan and India.

The government’s goal of providing fast internet through nationwide network is far away. There are still very few fiber optic cables, especially in rural areas.

Germany is also lagging behind in the expansion of 5G mobile communications, with small and medium-sized businesses shrinking in some regions.

Finally, there is a shortage of IT experts in the country. According to industry association Bitcom, there are currently 1,000,000 vacancies for IT professionals. Seven out of ten companies complain about the lack of IT specialists and 60 percent expect the situation to get worse in the coming years, Bitcom said.

Chip shortage

Germany’s powerful car industry is struggling to boost production after the coronavirus crisis due to a lack of semiconductors and other components.

As car manufacturers and suppliers rely almost exclusively on chips from only a handful of manufacturers in Asia and the United States, supply chain disruptions have exposed an Achilles heel in Deutschland AG’s business model.

As Germany has become more vocal behind globalization, the global supply chain that has turbo-charged its economy is now proving to be a serious weakness.

A survey by the IFO Institute found that a record .4..4% of industrial companies had difficulty purchasing intermediate and raw materials in September. Among car companies, this number has reached an unprecedented 97%.

Lack of microchips and other industrial components is hampering economic recovery this year, forcing executives and policymakers to rethink supply lines and trying to reduce reliance on a handful of Asian and US suppliers.

Since global semiconductor production capacity is fully utilized, significant short-term expansion of production is not on the cards and experts predict that the deficit will remain good until next year.

In alliance with EU executives, Germany and France want to pour billions of euros into state aid projects to help build local chip factories and develop next-generation semiconductors.

Age Society

Germany has been aging for decades after a relatively low birth rate and unequal immigration.

Faced with a rapidly aging society and a shrinking workforce, Merkel has largely ignored calls for more steps to reform the public pension system and make immigration rules more flexible.

Under the existing rules enacted by Merkel’s first coalition government in 2000, the age at which Germans can receive a full state pension without deduction is gradually increasing from 5 to 20 years, until 20311.

A panel of government economic advisers has suggested raising the age limit to 68 by 2042. Social Democrat.

According to the Institute for the World Economy (ifW), the peak of German employment is expected to reach 2023 with about 46 million people. After that, new workers are more likely to leave the labor market than enter.

This means that Germany will lose about 1,000,000 working people every year from 20226 onwards.

The contracted workforce is expected to reduce potential growth in economic output by 0.26 percent with normal power utilization – well below the 1.4 percent long-term average.

Experts say this problem can be addressed with higher immigration, improved child care services to increase parental market participation, and more flexible work time models for older people to work as much as possible.

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