German economy stuck in the doldrums

"The German economy is stuck and is bobbing along in the doldrums, while other countries are feeling the upswing," says ifo head of economic research Timo Wollmershäuser. He adds: "We have a structural crisis. There is too little investment, especially in industry, and productivity has been stagnating for years. We also have an economic crisis. The order situation is poor and the gains in purchasing power are not leading to increased consumption, but to higher savings because people are insecure."

The savings rate is now 11.3%, significantly higher than the ten-year average of 10.1% before coronavirus. One ray of hope, however: the inflation rate is expected to fall further from an average of 5.9% last year to 2.2% this year. It will then fall to 2.0% and then 1.9% in each of the next two years. The unemployment rate is set to rise from 5.7% last year to 6.0%. It will then fall to 5.8 percent next year and finally reach 5.3 percent. According to ifo, the government budget deficit is likely to reach 2.0% of economic output this year and fall to 1.3% and 0.9% respectively in the next two years.

The construction sector, whose output is expected to shrink by 3.1% this year, and industry, which is set to decline by 2.0%, will have a negative impact. "Decarbonization, digitalization, demographic change, the coronavirus pandemic, the energy price shock and China's changing role in the global economy are putting established business models under pressure and forcing companies to adapt their production structures," says Wollmershäuser. As a result, there is a slump in investment, particularly in industry, which accounts for a significantly higher proportion of economic output in Germany than elsewhere. "And the population is ageing faster, with fewer and fewer people in work. Shifts from the industrial to the service sector largely explain the productivity standstill of recent years," he adds.