German Industry's Struggle: Falling Competitive Edge and Economic Woes

One of the primary challenges facing the German economy is the diminishing competitiveness of its industry sectors, notably within the automotive sector, according to PFR analyst Andrzej Kochman.

In his report on the German economy, shared with PAP, Kochman observed that Germany's GDP contracted by 0.2 percent in the fourth quarter of 2023, leading to what he suggests to be a marginally negative growth rate for the entirety of 2023.

Kochman highlighted that the economic sentiment towards the German industry is worsening, with expectations for improvement in 2024 being particularly low.

Kochman identifies high energy costs and diminishing industrial competitiveness as primary issues plaguing German industry. The automotive sector, in particular, exemplifies Germany's loss in competitiveness, potentially impeding the nation's economic recovery.

He explained that, despite expectations for a rebound in exports following setbacks from COVID-19 and the Ukraine conflict, the shift towards electromobility presents a challenge. The transition disrupts the once robust gasoline-powered vehicle exports, casting uncertainty on Germany's competitive edge in global markets.

Germany's historical lead in the global market is now in question, he added.

There has been a revival within the German automotive industry, yet it still hasn't returned to its pre-pandemic levels, Kochman noted.

Kochman also pointed to supply chain disruptions and weak domestic demand as other significant challenges. However, he predicts a slow recovery in these areas, propelled by declining inflation leading to higher real wages. Additionally, he cited societal aging and skilled workforce shortages as pressing concerns.

Kochman opined that measures taken by the German government to stimulate the economy might be insufficient. Notable impacts from the special fund for Bundeswehr modernization, aimed at stimulating economic activity, are expected in the latter half of 2024.

He also remarked that the outlook for 2025 isn't promising either. Anticipated economic recovery may be hampered by a constitutional court ruling limiting the government's ability to finance energy transition efforts. Furthermore, the ongoing situation in Ukraine and the Russian Federation adds an element of uncertainty, complicating commercial relations with Russia, Kochman explained.