Germany’s weak economy needs saving: Companies demand Berlin action

With the conservative CDU/CSU bloc led by Friedrich Merz and Markus Soede winning the German national election, the corporate world calls for swift action from Berlin on rising power costs, excessive red tape

Friedrich Merz of CDU with Markus Soeder of CSU CDU leader Friedrich Merz shakes hands with Markus Soeder (left), leader of CSU and Minister-President of Bavaria, at Berlin after the German national election | AP

Germany’s geographic location, along with its tag as Europe’s economic leader, made for an enticing location that has attracted investors for the past three decades. However, the latest studies point to a worrying trend, with key economic indicators falling since 2018, despite them beating the EU average. 

The conservative Christian Democratic Alliance (CDU/CSU) now has the wheels of Germany after it emerged victors in Sunday’s national election, with Friedrich Merz leading the charge. Now, industry leaders want Berlin to form a government as soon as possible. 

Germany is no mere speck on a map when it comes to its impact on the global economic landscape. It is the world’s third-largest economy, flaunting a gross domestic product (GDP) of €4,305 billion in 2024.

In Indian currency terms, Germany’s GDP was ₹392.2 lakh crore, with service sector accounts taking a 70 per cent share of it. This is more than double of India’s FY2023-2024 GDP of ₹173.8 lakh crore on constant terms, as per data from NITI Aayog.

In international trade, the European nation has a firm footing with it being the third largest export nation in the world, to date. Motor vehicles and automotive parts make up a chunk of the exports, along with chemical products. 

However, with mounting costs, rising global competition, and a mountain of red tape—as far as Germans are used to—corporate leaders want Berlin to quickly form its new government to address their concerns. 

RTRS-Alternative-for-Germany-AfD-Alice-Weidel - 1 Co-leader of the far-right Alternative for Germany (AfD) party Alice Weidel | Reuters

The country has one of the highest energy costs in the region—around twice as much as global leaders US and China—and the industrial sector has been calling for policy intervention for years. Apart from energy, the costs involved with labour and detrimental economic conditions have pushed some companies to consider investing outside of Germany. Moreover, inflation reached a historic high of 8.7 per cent in 2022.

"Germany has lived on substance that has been exponentially diminishing for far too long," according to Andreas Glunz, Managing Partner - International Business at KPMG in Germany. 

A recent report published by KPMG—one of the top consulting firms in the world—titled Business Destination Germany 2024 pointed to the fact that companies found bureaucracy to be excessive and the energy supply to be expensive and insecure, apart from the country having a lack of openness to technology within the EU.

Of the companies surveyed, 13 per cent said they were considering shifting their production out of Germany due to high energy costs. Among the EU, Germany was rated the "absolute worst" when it comes to digitisation of public administration. 

The results of the study provided a much more grave picture of Germany than the one that was published a year earlier. The proportion of firms that viewed their situation as good/very good fell a significant 16 percentage points to just 50 per cent in the course of a year.

CDU leaders Friedrich Merz and Julia Kloeckner - Reuters Christian Democratic Union (CDU) leader Friedrich Merz receives flowers from Julia Kloeckner (left) treasurer of the party | Reuters

"The challenges facing our country are enormous: The economy urgently needs a fresh start with fundamental reforms," Deutsche Bank CEO Christian Sewing told Reuters recently. 

Major national players such as Siemens Energy have called for major reforms in energy policy, and the expansion of power plant capabilities to tackle the mounting energy costs.

The new German government has their work cut out for them. Industries and investors have now turned their attention to Berlin, and how the newly formed government plans to tackle administrative and energy problems with timely policy intervention. 

Businesses in Germany prioritise maintaining their core business as one of the major factors for continuing to invest in the country. That, paired with the attractiveness of the European sales market and Germany’s central location logistically make for an attractive economy to invest in. That is, if the new Berlin government can reduce operating costs, champion digitisation, cut down the red tape, and aggressively move toward renewable and alternative energy sources.

Join our WhatsApp Channel to get the latest news, exclusives and videos on WhatsApp