Spring report sees only minimal growth for the economy

It seems a little strange: the DAX is rushing from record to record, but the German economy can only recover slowly. From the perspective of experts, too little political stimulus is to blame.

Politicians across party lines agree on the diagnosis: the economic growth figures are “dramatically bad,” says Federal Economics Minister Robert Habeck of the Greens. Politicians must therefore “boost reforms in order to strengthen and maintain Germany’s competitiveness in a completely changed global environment”.

FDP Federal Finance Minister Christian Lindner says it like this: “We need a different economic policy. We have to do more for growth, our companies are not internationally competitive.”

Forecasts have been revised significantly downwards since autumn

The background to this is the expectation that the German economy will only grow modestly this year after the real gross domestic product fell by 0.3 percent last year: the federal government expects an increase of 0.2 percent, the leading economic research institutes with 0. 1 percent. Compared to the forecasts from autumn, the values ​​have been revised significantly downwards.

Careful ones Glimmer of hope

The fact that the DAX is currently climbing from record to record does not contradict this. German companies make profits primarily abroad, i.e. where they often invest.

It fits with developments on the stock market that the domestic economy could also be slowly recovering – after all, there is hope for better times in equity securities. And there are a few factors that point to a recovery: Inflation is falling, which, together with higher wages, could boost consumption. In addition, most observers expect a global interest rate turnaround. Just a few days ago, the Swiss National Bank became the first of the major central banks to reduce interest rates.

Many unresolved structural problems

This should give the economy a boost worldwide, says Jörg Krämer, chief economist at Commerzbank. And that in turn helps the heavily export-oriented German industry. The gross domestic product could increase again by 1.0 to 1.5 percent next year. Most forecasts from politicians and economic researchers lie in this range.

However, Commerzbank economist Krämer caveats: The end of a recession does not automatically mean a strong economic recovery, “because the many structural problems of the German economy remain unresolved, especially because the government is not yet prepared to tackle them decisively.”

Which puts the ball back in the politicians’ court. The federal government is hoping for short-term stimulus from the so-called Growth Opportunities Act, which, after much back and forth, has now passed the Federal Council.

But economists like Krämer warn that the structural weaknesses of the German economy should also be addressed: issues such as excessive bureaucracy, high taxes and energy costs compared to other countries, and the labor shortage. Although the number of employed people is at a record level, at the same time the number of hours worked is falling – which also has consequences for the gross domestic product per capita. That falls even more significantly than the general gross domestic product.

Lack of labor is becoming an ever-bigger problem

In addition, the baby boomers will be retiring in the coming years. Their workforce will then be missing – which, according to economist Veronika Grimm from Nuremberg University of Technology, will soon be the biggest brake on growth. Ultimately, the number of workers has a direct impact on the production potential.

The answer should actually be more work instead of less – despite the discussions about the 35-hour week after the collective bargaining agreement at the railway and despite the discussions about a four-day week.

Low taxes attract high qualifications

Above all, however, there would be a need for tailor-made immigration. Professor Achim Wambach, President of the Center for European Economic Research, refers to studies that come to a clear conclusion. “The highly qualified go where taxes are low, the low qualified go where the social system is well developed,” says Wambach.

Which shows that in the economy everything is somehow connected to everything else, including taxes and immigration. The reform booster that Economics Minister Habeck is talking about and the new economic policy that Finance Minister Lindner is advocating for – they are therefore of the greatest urgency for economists like Wambach. At a dialogue event with Lindner, Wambach made this clear: “If this government doesn’t get it done, it’s a task for the next government.”