Executives say Germany is missing out on the investments that could lay the foundations for new industries. Over a third of industrial companies in Germany are cutting investments in core processes due to high energy costs, according to Allianz. Two-thirds report that their competitiveness is at risk.
The country lags behind in sectors such as software and AI. Investment in research and development stood at 3.1% of GDP in 2022, compared with 3.6% in the U.S. and 5.2% in South Korea, according to Allianz.
Decades of government underinvestment have left Germany with a depleted transportation infrastructure, including trains that no longer run on time and a military that is a shadow of what it was during the Cold War. In May, the business-affiliated IW economic institute and the trade union-owned IMK think tank estimated Germany would need €600 billion in spending over the next 10 years to offset its investment gap, modernize the country’s education system, fix its transport networks, upgrade its power grid and digitize its public administration.
Germany also needs tens of billions of euros every year just to maintain defense spending at 2% of GDP or more—one of its obligations as a member of NATO. Trump has demanded that the country raise defense spending to 5% of GDP.
German consumers, meanwhile, are among the most highly taxed in the world. Last year, a German employee with no children was paying 47.9% of gross pay in taxes and social security contributions on average. Germans are also saving 20% of their income as of the second quarter of 2024, more than the eurozone average and a near two-percentage-point rise since just before the pandemic.
“This is a problem because every one-point increase in the saving rate takes €25 billion in demand out of the economy,” said Rolf Bürkl, head of consumer climate at the Nuremberg Institute for Market Decisions, which compiles Germany’s main consumer confidence index. A big chunk of these savings is languishing in bank accounts and, given the right incentives, could be tapped to fund productive investments.
Another hurdle, constitutional restrictions on government spending and public debt would have to be overcome in parliament.
The current electoral campaign has mostly ignored these ideas. Unpopular measures, such as welfare-state cuts that might be needed to free up funds needed for urgent investments, also are hardly being discussed.
Source: WSJ
More details:
https://www.linkedin.com/posts/activity-7289969303989215232-FmsY
https://www.wsj.com/economy/trade/germany-economic-model-broken-exports-095a488d
https://mediapressmarket.com/?page_id=410