German export economy faces continued deterioration, according to Bundesbank warning
Germany's export competitiveness has been under strain in recent years, with the European Investment Bank identifying a range of structural issues as the primary culprits. According to the Bundesbank, these challenges include declining competitiveness in key sectors, demographic changes, labor shortages, rising unit labor costs, and increasing bureaucratic burdens. External factors such as the COVID-19 pandemic and the Russian-Ukrainian conflict have further disrupted supply chains and increased energy prices, particularly in energy-intensive sectors.
The deteriorating competitiveness in sectors like mechanical engineering, the electrical industry, and chemicals has led to more than three-quarters of German export market share losses between 2021 and 2023. This trend indicates deep-seated supply-side constraints within the national economy.
To address these challenges, several measures have been proposed. The Bundesbank emphasises the need to address demographic and labor market issues by tackling the shortage of skilled workers, suggesting policies that focus on education, vocational training, and potentially immigration reform.
Another key area is reducing bureaucratic procedures and regulatory burdens to improve the business environment and reduce delays for exporters. The European Investment Bank estimates that every second company in Germany considers increasing bureaucracy and tax burden as investment barriers.
Energy policy transformation is also crucial, with a focus on decarbonizing industry without losing competitiveness. This includes international cooperation through initiatives like the Climate Club and Clean Industrial Deal, fostering green technologies and sustainable industrial development to reduce dependency on fossil fuels and lower energy costs over time.
Strengthening innovation and industrial modernization in key sectors such as mechanical and electrical engineering is also essential to regain competitive edge. Building international partnerships and trade frameworks for clean technologies can support export growth in this area.
A study suggests that a shift to digital, internet-based administrative processes, modeled on the Danish system, would almost offset two-thirds of the estimated bureaucracy costs. The study estimates the annual bureaucracy costs for the German economy at up to 146 billion euros, with EU directives accounting for 57 percent of this burden. However, the study does not discuss the impact of decreasing competitiveness or insufficient demand on the estimated bureaucracy costs.
Without these market share losses, Germany's gross domestic product would have grown by around 50 percent more from 2021 to 2024. The study does not mention the potential impact of the suggested changes on Germany's gross domestic product growth.
In conclusion, addressing Germany's export competitiveness challenges requires a multifaceted approach, involving modernising the industrial base, resolving labor market shortages, reforming bureaucratic systems, transitioning energy supplies to more stable and sustainable sources, and enhancing the global trade strategy. These steps are crucial for addressing the fundamental structural deficits currently undermining export performance.
[1] Bundesbank Monthly Report, May 2025 [2] European Investment Bank Report, April 2025 [3] ifo Institute for Economic Research Report, November 2023 [4] German Federal Statistical Office Report, May 2023 [5] European Commission Communication, "A Clean Industrial Deal for Europe", October 2024
In response to dwindling competitiveness in sectors like mechanical engineering, the electrical industry, and chemicals, there is a need to strengthen these industries through innovation and modernization. This includes leveraging digital, internet-based administrative processes to reduce bureaucratic costs, which are estimated to amount to up to 146 billion euros annually.
To boost the business environment and reduce delays for exporters, it's crucial to address regulatory burdens. The European Investment Bank highlights that every second company in Germany considers increasing bureaucracy and tax burden as significant investment barriers.
[1] Bundesbank Monthly Report, May 2025 [2] European Investment Bank Report, April 2025 [3] ifo Institute for Economic Research Report, November 2023 [4] German Federal Statistical Office Report, May 2023 [5] European Commission Communication, "A Clean Industrial Deal for Europe", October 2024
