What are the problems of an economy

Economic growth : Five reasons why the economy is slacking

There are more pleasant dates for German economics ministers than the one that Peter Altmaier (CDU) had to attend today. In the morning he presented the government's forecast for economic growth - and corrected the previous estimate significantly downwards. The German government now estimates that the German economy will grow by 0.5 percent this year; in 2020 it should be 1.5 percent. A "phase of weakness", according to Altmaier, but which will be overcome.

But Germany’s economy is currently in a downward spiral: problems in foreign trade, falling income, declining order books - all of these factors are mutually dependent and reinforce each other, so that calls for an economic stimulus package have emerged recently.

But even if the federal government threw down corresponding demands, it admitted that the economic development “got into troubled waters”.

These are the biggest rapids:

Brexit: a nightmare for the industry

Even if the public can no longer hear the subject of Brexit, German industry is grateful for every day that the exit is postponed. Exports to Great Britain wash 82 billion euros per year to Germany - every day without Brexit brings in a few million that would otherwise collapse. "This makes Great Britain the fifth most important sales market for the German economy," explains Martin Wansleben, Managing Director of the German Chamber of Commerce and Industry (DIHK). "German companies have 2,500 branches in Great Britain and employ around 400,000 people; every eighth company is currently planning to move production from the UK."

In the event of an unregulated Brexit, some associations firmly assume a recession. The German Institute for Economic Research recently made a “cautious calculation” that a hard Brexit would lead to a decline in German exports in 2020 of at least 0.6 percent. The consequences cannot yet be foreseen exactly. In a survey by the management consultancy KPMG, 47 percent of the companies active in the British-German business stated that they were largely unprepared for Brexit.

Trump, Germany and the automotive industry

US President Donald Trump celebrated a triumph on Monday. The EU agreed to start trade talks with the US. A year ago, French President Emmanuel Macron, on behalf of the entire EU, said that Europe would not negotiate “as long as a weapon is held to our heads”. The weapon in this metaphor are punitive tariffs that Trump has imposed on European goods and is increasingly threatening to levy. The German economy would be hit hard by this.

The DIHK put the damage from the punitive tariffs on aluminum and steel imports that have been in force since June 2018 at around 1.2 billion euros in the next two years. The fact that the EU is now buckling shows what a risk a further deterioration in exports to the USA would mean. Punitive tariffs would hit the German auto industry particularly hard: In May of last year, the Ifo Institute calculated damage of around five billion euros. At the request of the FDP parliamentary group in September, the federal government put the possible losses at seven billion euros.

In addition, the German auto industry has enough self-inflicted problems: the delayed changeover to the EU's new emissions test system, the consequences of the diesel scandal and the delayed changeover to environmentally friendly drives. And risks in the automotive industry, according to the latest joint report by the leading economic research institutes, are “not sector-specific, but have macroeconomic weight”.

From the community

There is a very simple antidote: increase domestic demand. Unfortunately, this was and is being prevented on the part of employers and politics. [...] Even the DIW describes this as an obstacle to growth.

... writes user DerDilettant

Mountain of debt in China

Cars are also essential for the German export business with China. The People's Republic is the largest auto sales market in the world and Germany's second most important trading partner. The shock was all the greater when it was announced in March that VW was seeing a year-on-year sales decline in China for the first time since the late 1990s. Because the economy is paralyzing in the People's Republic as well. Experts expect the figures, also published on Wednesday, to slow down to 6.3 from 6.4 percent at the end of 2018 - it would be the lowest growth figure in 27 years.

The government there is still keeping the economy going with massive economic aid; the OECD and the creditworthiness watchdogs of S&P are not reassured by this. Because the Chinese mountain of debt is growing and poses an even greater threat to the global economy than a weaker Chinese economy.

Mountain of debt in Europe

But there are also enough risks for the German economy in Europe. The biggest problem child is Italy. As early as 2018, EU criminal proceedings could only be averted because Italy promised to incur ten billion less debt than planned. But a week ago the government in Rome announced that new debt would be increased from 2.04 percent of GDP to 2.4 percent, as growth would only be 0.2 percent instead of 1.0 percent.

Given the Italian debt of more than 2.3 trillion euros, insolvency would plunge Europe into a more severe crisis than Greece did with its “only” 320 billion euros. The fact that the European Central Bank has accustomed the economy to zero-interest loans for years diminishes the hope that financial policy would have effective instruments to counter a crisis.

The shortage of skilled workers, the "greatest obstacle to business"

But the majority of German companies have a problem that, at least at first glance, does not depend on the major geopolitics: they simply cannot find any more skilled workers. Federal Finance Minister Olaf Scholz (SPD) spoke on Sunday of "hundreds of thousands of positions" that could not be filled.

“From the company's point of view, the shortage of skilled workers is the greatest obstacle to business,” says Wansleben. 61 percent of the companies in the current DIHK business survey also saw it. "Finding suitable skilled workers has long been a brake on GDP growth in this country."

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