Experts say German business model not suitable for changes

23 Jan, 2024

The recent economic downturn in Germany during 2023 is not a fleeting setback but indicative of deeper issues within the country's business model, according to experts.

While the German economy contracted by 0.3% last year, making it the only major global economy to shrink, the forecast for 2024 suggests a modest 0.3% overall economic growth, primarily driven by private consumption rather than substantial long-term investments.

The challenges faced by German industry are not merely cyclical but point to fundamental flaws in both the German and broader European economic models. Notably, the stability-oriented European model, suitable for calmer times, struggles to adapt to the current dynamic economic landscape. The traditional German approach, featuring medium-sized enterprises focused on niche markets and incremental innovations, is deemed inadequate for success in today's rapidly evolving markets, especially in the digital economy.

Issues such as overreliance on bank loans, high energy prices, and geopolitical tensions affecting trade relations contribute to the structural problems faced by the European economy. Business leaders at the World Economic Forum identify overregulation and a lack of innovation as significant hurdles, calling for urgent action. Germany's Economy Minister acknowledges the challenges but attributes them to geopolitical tensions, emphasizing the need for open markets.

Critics argue that political decisions, such as the phase-out of nuclear power plants, and prolonged debates hinder the country's competitiveness. The three-party government is criticized for its dogmatic approach to problem-solving, causing uncertainty among companies and citizens. The need for breakthroughs in energy policy and collaborative solutions to enhance competitiveness remains pressing.

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