Germany's Economic Struggles: Stalling GDP, deficit surge, and export decline raise concerns. What are the challenges Europe's largest economy is facing and what is the way forward?
Venkatesh Rao explains.
Venkatesh Rao explains.
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00:00 The biggest problem for the German economy is that it's not only a cyclical issue.
00:05 The growth potential has decreased.
00:07 We haven't seen any big public investment for 10-15 years.
00:15 Something seems amiss in the German economy.
00:18 The European powerhouse is stalling, as evident in the stark figures before us.
00:24 Preliminary data from the Federal Statistical Office shows a deepening deficit of 42.1 billion
00:32 euros in the country's state budget during the first half of this year.
00:38 The biggest problem for the German economy is that it's not only a cyclical issue.
00:42 Whether it is now a stagnation or a small recession, this is all cyclical.
00:47 But we have structural issues.
00:48 And the structural issues were not only caused by the pandemic or the war in Ukraine.
00:53 They start already much earlier.
00:56 Germany's gross domestic product stagnated during the second quarter at 0%, dashing hopes
01:02 of an anticipated recovery in the spring months.
01:06 This sobering data comes after the country entered a recession, contracting 0.2% in the
01:13 first quarter of 2023 and 0.4% in the fourth quarter of 2022.
01:22 But what is even more concerning is the decline in German exports of goods and services, which
01:27 fell 1.1% in the second quarter of 2023.
01:33 Germany is really at a watershed right now concerning economic growth.
01:37 We had a pretty good run and that good run was built mostly on our export success.
01:43 The fall in exports and sluggish demand, both domestic and global, is hitting the German
01:49 economic model in its heart.
01:52 However, several economists argue that these challenges were in motion well before the
01:58 pandemic or the energy crisis took its toll, and are now pointing fingers at the government
02:05 for inaction.
02:07 The German government didn't invest.
02:08 We haven't seen any big public investments for 10, 15 years.
02:12 We saw already in the years prior to the pandemic that there is a lack of qualified workers
02:16 in Germany.
02:18 And this kind of suffering, plus the lack of future-oriented investments, are the main
02:24 drivers and the main reasons why international competitiveness has deteriorated prior to
02:30 the pandemic.
02:31 When I speak to entrepreneurs in the country, what they complain first and foremost, other
02:37 than lack of qualified labor, is bureaucracy, red tape, reporting requirements, and all
02:44 the rest of it.
02:46 So this is a country that is built a lot on small and medium-sized enterprises.
02:52 And for them, that's a huge burden.
02:54 With debates over policy and need for transformative changes, Germany's journey to recovery is
03:02 far from straightforward.
03:04 Reporting for BQ Prime from Frankfurt, I am Venkatesh Rao.
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