German business model not suitable for changing times say experts

22 Jan, 2024

In 2023, the German economy faced a contraction of 0.3%, distinguishing it as the sole major economy to shrink globally.

The prevailing sentiment among experts suggests that this downturn is not a mere short-term aberration but indicative of deeper issues within the country's business model. The Association of German Industries (BDI) anticipates a modest 0.3% overall economic growth in the current year, with a notable reliance on private consumption rather than robust long-term investments.Siegfried Russwurm, BDI's head, contends that a genuine recovery in German industry is unlikely in 2024, emphasizing the preference for private consumption as the primary driver of growth.

This economic challenge is not confined to a cyclical phase but underscores fundamental problems inherent in the German and European economic models, according to economists and business leaders.The McKinsey Global Institute (MGI) posits that Europe, mirroring the German model, needs to adapt to changing times. This involves attracting more risk capital for innovation in the digital economy and addressing competitiveness issues, such as high energy prices.

The World Economic Forum discussions in Davos echo the sentiment that structural challenges, including overregulation and insufficient room for innovation, contribute to the predicament.Business leaders, including Merck's CEO Belén Garijo, highlight overregulation as a significant hindrance, calling for a more urgent and decisive approach.

German Economy Minister Robert Habeck acknowledges the problems but attributes them largely to rising geopolitical tensions affecting international trade. However, critics argue that political decisions, such as phasing out nuclear power plants and prolonged debates without practical solutions, have exacerbated the challenges.

The need for breakthroughs in energy policy is emphasized, particularly in creating back-up capacity for fluctuating renewable energy sources.

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