Is the German Economy Doomed?

According to a report by Bloomberg Economics, Germany is at risk of falling onto an economic downward path that seems almost impossible to reverse. Over the past five years, Europe's largest economy has suffered significant growth losses: gross domestic product (GDP) is five per cent below the level that would have been possible without pandemic-related disruptions. Households are facing increasing financial burdens, while politicians have yet to offer any convincing solutions.

Structural shocks weigh on competitiveness

The report cites structural challenges as the main causes of the current crisis. The loss of cheap Russian gas and the difficulties in the automotive industry, particularly at Volkswagen (ETR:VOWG_p), have weakened the German economy. As a result, the incomes of German households are around 2,500 euros lower each year. It will be difficult to catch up with the accumulated backlog.
 
Amy Webb, executive director of the Future Today Institute, warns of the long-term consequences: ‘Germany's decline is not a sudden collapse, but a creeping process that is gradually making people's lives worse – possibly for the rest of their lives.’ The impact on Europe could also be severe, as the economic imbalance would continue to worsen.

Deindustrialisation as a central problem

Rapid deindustrialisation in Germany requires a fundamental rethink of the economic structure, according to experts. However, Stefan Koopman, senior macro strategist at Rabobank, sees little sign of such a change so far. Energy-intensive industries are struggling with sharply increased production costs, while exports are falling and companies are investing less in Germany.
 
The consequences are also being felt on the labour market: at six per cent, the unemployment rate in 2024 reached its highest level since 2016. Large companies such as Thyssenkrupp (ETR:TKAG), Bosch (NS:BOSH) and Ford have announced extensive job cuts. Although Volkswagen has been able to avert operational redundancies for the time being, the group is still planning to cut more than 35,000 jobs by 2030.

E-mobility and the shortage of skilled workers as additional challenges

The transition to e-mobility brings with it further challenges. According to the German Association of the Automotive Industry (VDA), employment in this sector could fall by 186,000 jobs by 2035. Labour market expert Enzo Weber emphasises that the real problem lies not only in the loss of old jobs, but above all in the lack of new employment opportunities and investment in future-oriented sectors.

Opportunities for reform remain

Despite the sobering situation, Bloomberg Economics also sees opportunities for Germany. The comparatively low debt ratio in international comparison offers room for investment. Economists are forecasting a moderate economic recovery in the medium term. However, this should not obscure the fact that far-reaching reforms are urgently needed. ‘Politicians must not see a temporary improvement as an excuse to postpone the measures that are urgently needed,’ warns Salomon Fiedler of the private bank Berenberg.
 
And even if politicians set the right and important course in the coming year, the measures will not take effect immediately but will take time. In the meantime, the situation for everyone in Germany could dramatically worsen. And that is precisely why it has probably never been more important to make the right decisions and take out private insurance. Not only in Germany, but throughout Europe.
 
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