This is clearly what the so-called “five wise men” of the German Government’s Advisory Council say, in the mouth of its president, Monika Schnitzer. : “The neglect of politics and economics in recent years and decades” is what has caused Europe’s powerhouse economy to “remain stagnant.” For this reason, they have revised GDP growth downward, leading it to a recession of 0.1% this year and forecast a meager growth of 0.4% for 2025, in their semi-annual report published this Wednesday.
In May, the Chancellor’s advisers remained confident of a recovery in growth of 0.9% for next year, following a slight expansion at the end of this year of 0.2%. Little remains of this data and expert confidence is low, especially after the results of the US 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 the Germany 1% of GDP.
“If the tariff plans are implemented, it could cost us 1% of economic output. This is very painful given that our economy will not grow at all this year and probably less than 1% next year, even before the implementation of the American tariff plan. “If the new taxes are actually 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 own words, he does not consider at all the probability of a 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 growth of 1.1%, after growth of between zero and 0.1% at the end of this financial year.
Faced with this panorama, the Advisory Council called for a “decisive modernization” of the country’s economy, whose early elections are scheduled for February 23 next year, after the fall of the “traffic light coalition” .
Experts speak of an “economy lagging behind” compared to the rest of the world. In the report, they point out that the country has only grown by 0.1% in real terms over the past five years. Everything has declined this year: production and value added in industry and even investment.
Manufacturing production surprised in September, but for the worse. 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 was unable to retain investments from 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%, or 260 billion euros, were during the mandate of Olaf Shcolz (2021).
The economic journalist of the German economic 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 reaffirm in the report that the recovery of the global economy does not translate into an increase in exports. This is fatal for an economy whose growth relies on foreign trade like that of Germany. Likewise, the icing on the cake is brought by consumers who, despite the fact that real wages have experienced significant growth in 2023 and 2024, domestic consumption “has increased slightly”, they say.
“The weakness of the industry and the length of the weak phase suggest that the German economy is being held back by structural and cyclical problems,” Schnitzer said.
Economists say that for many years, public spending aimed at modernizing the economy in the long term has not been a priority. They believe that to guarantee this development and return German industry to competitive territory, it is necessary to create provisions “with strong restrictive effects”, particularly focused on transport infrastructure and a floor for education spending. They also talk about increasing defense spending to meet the NATO target of 2% of GDP.
On the other hand, they consider it necessary for Germany to catch up in terms of digitalization of the financial market. Sources from the Bundesbank itself assured elEconomista.es at a time when the entire sector is very outdated in this aspect and is waste their competitiveness compared to the rest of European countries.
“The main 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 frozen, awaiting the February elections and the dawn of what Donald Trump will decide to do regarding customs duties. In this sense, Scholz could not help but take his share of responsibility and claimed that all this was due to “accumulated deficiencies” over the past decades.
For his part, the Minister of the Economy, Robert Habeck, added that these reductions in the forecasts of the “five wise men” are nothing other than a sign that “the short-term growth measures that they had proposed are more than necessary. in the budgets for 2025. He appealed so that everyone involved “cooperates” given this break which could possibly occur before the snap elections in February.
