Rising populism amid economic uncertainty: Germany confronts pandemic impact and Ukraine conflict aftermath

Germany's economy has lately shown few positive signs. On Wednesday, data on industrial activity indicators was released. The industrial PMI stood at 45.4 points, a slight rebound from December's 43.3 and above forecasts of 43.7.

An analyst at the Michael/Ström Brokerage House acknowledged a slight increase in the index value in January. However, it remains below 50 points, reflecting a decrease in activity. But, he suggests, this might indicate that the mood could gradually improve in the coming months, and the industrial sector might slowly recover.

Dr. Lars Gutheil, managing director of the Polish-German Chamber of Industry and Commerce, concurs with the assessment that the pandemic and Ukraine conflict significantly affected Germany. He cites sharply increased energy prices and ongoing supply chain disruptions as business problems. He explains that reduced global and domestic demand is reflected in persistently low industrial production.

He also reports a negative balance for Germany's exports over the first eleven months of 2023, down 1.1% compared to the previous year's period.

Notwithstanding, there are positive shifts as well. Germany has ensured its energy security, particularly in the gas market, while inflation has recently decreased - says Dr. Gutheil.

Our interviewee agrees that there are remaining structural issues, such as bureaucratic obstacles to investment and an aging population leading to a labor shortage. He further emphasizes that the German government needs to speed up processes and improve digitization across the country.

So could Germany rebound from its economic low point? The head of the Polish-German Chamber of Industry and Commerce sees a glimmer of hope.

- There is an indication that the economic outlook for 2024 looks brighter. According to the Kiel Institute for the World Economy (IfW), slightly improved economic growth of 0.9% is predicted. Furthermore, a 1.2% GDP increase is expected in 2025. A significant influence on this improvement is the anticipated sharp reduction in inflation to 2.3% in 2024, dropping to 1.8% in 2025 - he enumerates.

Economic experts are also predicting a revival in international trade and a greater demand for German products abroad

They tend to gain when establishment parties fail, with their platform primarily being a protest against government policies and a clear disdain for groups perceived as threats to Germany's prosperity, such as immigrants and incoming refugees - assesses the journalist.

However, the German public has been very mature about this. Recent protests have been directed not only against the government but also against the "Alternative".

- The largest demonstrations in recent weeks have been protests against the AfD. On one hand, these show the maturity of a democratic society that can organize such large-scale demonstrations. On the other, they highlight the significant issue of the AfD's growing influence - the journalist elaborates.

However, the AfD has apparently been formulating plans that may be unpopular with many German citizens.

Recent protests were catalyzed by media revelations about a secret meeting in which party members allegedly discussed the expulsion of various ethnic groups from Germany - emphasizes Monika Sieradzka.

As the journalist outlines, there are concerns that the populist party might win in the forthcoming elections. She notes that the AfD could influence the election results, considering it has over 30% popularity ratings in the eastern provinces of Germany.

- In September, elections are scheduled for the parliaments of the federal states of Saxony, Thuringia, and Brandenburg. Moreover, municipal and district council elections will take place on May 26 in Thuringia, which will serve as an early test before the autumn elections - she emphasizes.

In its report, Saxo Bank notes that parties labeled as populist are gaining a voice not only in Germany but across Europe. The rapid increase in popularity of these far-right populist parties raises concerns about the economic consequences of their policies.

While the reasons behind this shift are complex, a blend of economic anxiety, cultural concerns, and political dissatisfaction fuels their growth - the analysis concludes.

Fears around immigration, cultural shifts, and the erosion of national identity are major factors driving the rise of populism. Populist parties wield these issues effectively through nationalist rhetoric, scapegoating immigrants, and advocating for tighter immigration controls. They exploit fear, positioning themselves as defenders of traditional values - the analysts summarize.