Grand Coalition: A Lost Decade for Germany

Alarm signals from German exports: With this title, the German Economic Institute (IW) recently published an analysis of the state of the German export economy. "Export growth rates have fallen by around two thirds in the period from 2015 to 2023 compared to 2000 to 2015," said the employer-friendly institute. As a result, exports' contributions to growth have fallen significantly from 1.8 percentage points between 2000 and 2015 to 0.8 percentage points from 2015 and to just 0.3 percentage points after 2019. Exports are therefore "hardly a growth engine for the German economy anymore."

Why the former growth engine is stuttering

A sustained deterioration in exports after 2015 is also evident from the OECD export performance, which "measures a kind of country-specific share in the global export of goods and services and can thus be interpreted as a result-oriented measure of the international competitiveness of a country's exports." In international comparison, Germany has the third worst export performance of the countries examined by the OECD after 2015, and the same applies to the nominal world export shares. Most of the large G7 countries share this fate, but other industrialized countries such as Sweden and Denmark do not. In contrast, some emerging countries such as India, China, Poland and Vietnam have shown significantly improved export developments.

There is no sign of a trend reversal: at the end of 2024, weak foreign trade pushed the economy into the red, as new detailed figures from the Federal Statistical Office show. Consumer spending did increase slightly thanks to higher wages and the government spent more money. But exports fell by 2.2 percent compared to the previous quarter - the sharpest drop since the spring of the Corona year 2020.

The IW identifies the reasons for Germany's weakness as being, on the one hand, that "the global economy and, above all, world trade developed more weakly." But the crucial point is that German exports grew at a much lower rate than average, with an annual growth rate of just 1.5 percent on a dollar basis. The IW analyzes: "As German real exports grew only about half as fast as their target markets, there were significant losses in market share, which are evident from the deterioration in export performance."

Bureaucracy, shortage of skilled workers and infrastructure: the biggest brakes on the German economy

The IW identifies " bureaucracy , infrastructure deficiencies and skilled labor shortages" as the main reasons for this "worrying finding." Germany's previous strengths have "eroded." German exports have been particularly weak in some important markets such as Great Britain and China. In addition, Germany's position has been crumbling since 2015 in the five most important global importing countries and also in important emerging countries, where China is generally gaining large market shares.

Overall, Germany has lost market share in 131 of 193 importing countries since 2105. According to the IW, part of the losses can be explained by "protectionism and geopolitics, for example with regard to the poorer export development to the UK, Russia and China due to Brexit." The product groups that have traditionally been particularly important for Germany tend to see the greatest losses: motor vehicles, machinery, chemical and pharmaceutical products.

Commerzbank chief economist Jörg Krämer demands that a future government must send a quick signal to stop the exodus of companies: "We have many great medium-sized companies in Germany. But we need a signal that something is changing to prevent more and more companies from going abroad and investing there." A signal of change could most likely come from reducing bureaucracy, for example if a new federal government abolishes the German supply chain law or reduces reporting requirements on sustainability, Krämer told dpa.

The German economy is in the longest recession in more than 20 years. In 2024, gross domestic product shrank by 0.2 percent, the second negative year in a row. For 2025, the federal government and leading economists expect at best minimal growth. The state development bank KfW even expects the economy to decline again by 0.2 percent. There have never been three years of recession in a row in the history of the Federal Republic.

Three years of recession? Why economists expect only minimal growth for 2025

One problem for stimulating measures is the financing of new debt. In 2024, the national deficit rose by 15 billion euros to almost 119 billion euros - although government revenue exceeded the two trillion euro mark for the first time. But at the same time, the state spent more on social benefits such as pensions, retirement benefits and citizen's allowance. Debt servicing is also a burden on the budget: higher rates are due to the increase in interest rates. The ECB is no longer acting as a state financier to the extent it did after the financial crisis. For private investors, German government bonds are still more attractive than French or Italian bonds. But they have lost their aura as a "safe haven". The yield on ten-year bonds is 2.5 percent. Italian bonds, on the other hand, yield 3.6 percent. However, investors can still remember the times when negative returns were generated: in the years of the deepest euro crisis, investors paid to be allowed to lend money to Germany. There is no longer any talk of that today.