This is clearly what those known as ‘the five wise men’ of the Advisory Council of the Government of Germany say, in the mouth of its president, Monika Schnitzer. : “the negligence in politics and the economy in recent years and decades” is what has caused Europe’s locomotive economy to “remain stagnant.” For this reason, they have made a downward revision of GDP growth, leading it to a recession of 0.1% this year and predict a meager growth of 0.4% for 2025, in their semiannual report published this Wednesday.
In May, the chancellor’s advisors were still confident in a recovery in growth of 0.9% for next year, after a slight expansion at the end of this year of 0.2%. Little remains of this data and confidence on the part of experts and the market is poor, especially after the results of the United States elections, which gave victory to Donald Trump.
In this sense, the president of the Bundesbank himself, Joachim Nagel, warned that the tariff policies that the president-elect intended to implement, with tariffs of up to 10% on European products, could cost Germany 1% of GDP.
“If the tariff plans are implemented, this could cost us 1% of economic output. It is very painful considering that our economy will not grow at all this year and probably less than 1% next year, even before the US tariff plan is implemented. “If the new taxes are really imposed, we could even fall into negative territory,” he said.
It is true that Nagel is much more optimistic than ‘the five wise men’, since in his words, he does not at all consider the probability of recession this year. A little less than a month ago, the Shcolz Government predicted that in 2025 Germany would enter the field of recovery next year, with a growth of 1.1%, after growing between nothing and 0.1% at the close of this exercise.
Given this panorama, the Advisory Council called for a “decisive modernization” of the country’s economy, whose early elections are scheduled for February 23 of next year, after a fall of the ‘traffic light coalition’.
Experts speak of “an economy lagging” with respect to the rest of the world. In the report they highlight that the country grew only 0.1% in real terms in the last five years. Everything has fallen back this year: production and added value in the industry and even investment.
Manufacturing production in September surprised, but for the worse. The figures published by Destatis show that it fell 4.6% year-on-year and 2.5% compared to the previous month. On the other hand, Scholz has not known how to retain the investment of German companies in its territory. According to a Bundesbank report, the transfer of resources out of the country since 2010 amounts to 650,000 million eurosof which 40%, that is, 260 billion euros, were during the mandate of Olaf Shcolz (2021).
The budget journalist for the German business magazine Wirtschafts WocheChristian Ramthun, assured elEconomsita.es that “German industry is investing in Poland, Austria and even Switzerland”, due to the lack of competitiveness.
On the other hand, experts reiterate in the report that the recovery of the world economy is not translating into an increase in exports. This is fatal for an economy whose growth is based on foreign trade like Germany’s. Likewise, the icing on the cake is provided by consumers who, despite the fact that real salaries suffered significant growth in 2023 and 2024, domestic consumption “has increased slightly,” they say.
“The weakness of the industry and the duration of the weakness phase suggest that the German economy is being held back by structural as well as cyclical problems,” Schnitzer said.
Economists believe that for many years public spending aimed at modernizing the economy in the long term has not been prioritized. They believe that to guarantee this evolution and put German industry back into competitive territory, it is necessary to create provisions “with a high binding effect”, especially focused on transport infrastructure and a floor for spending on education. They also talk about expanding defense spending to reach NATO’s goal of 2% of GDP.
On the other hand, they see it as necessary for Germany to “catch up” when it comes to the digitalization of the financial market. Sources from the Bundesbank itself assured elEconomista.es at the time that the entire sector is very outdated in this aspect and is wasting their competitiveness with respect to the rest of European countries.
“The key economic policy challenge is to enable digital innovation in the financial sector without jeopardizing financial stability,” said Ulrike Malmendier, member of the advisory board.
Germany is now a ship without direction. The budgets are completely stopped, waiting for an election in February and the dawn of what Donald Trump decides to do regarding tariffs. In this sense, Scholz could not help but assume his share of the blame and asserted that all this is due to “the accumulated deficiencies” in recent decades.
For his part, the Minister of Economy, Robert Habeck, added that these reductions in the forecasts of ‘the five wise men’ are nothing more than a sign that “the short-term growth measures that they had proposed are more than necessary.” in the Budgets for 2025. He appealed for all involved to “cooperate” given this pause that may possibly occur before the early elections in February.
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