Struggles escalate in the German economy - businesses face heavy burdens due to customs disagreements
In the face of mounting economic uncertainties, particularly due to the ongoing trade conflict with the USA, Germany is taking decisive action to stimulate investments and bolster its economy. Isabell Koske, OECD Germany expert, and Joerg Rocholl, president of the international business school ESMT Berlin, have both emphasised the need to reduce uncertainties to encourage long-term investment decisions.
Germany's response has been multi-faceted, starting with a historic shift in fiscal policy. The government has unveiled a comprehensive €500 billion stimulus package, a significant departure from its traditional fiscal prudence. This stimulus, focusing on modernising infrastructure, defence, and energy systems, is expected to boost German growth by more than one percentage point annually, with GDP growth potentially reaching 0.2% in 2025 and up to 2% by 2027.
Chancellor Merz has further introduced a separate growth package of €150 billion, focusing on infrastructure, digitalisation, and the energy transition to revitalise Germany's industrial sector. By targeting these areas, Germany aims to not only stimulate economic activity but also enhance its competitiveness in the face of global trade challenges.
While these measures are not directly aimed at resolving trade disputes, they help fortify Germany's economy against external shocks. The European Union has expressed readiness to respond to potential US trade actions, which could otherwise dampen German growth. Enhancing economic resilience through these investments helps Germany navigate trade uncertainties more effectively.
The surge in the Leading Economic Index (LEI) for Germany indicates improved economic prospects, supported by rebounding stock prices and consumer confidence. This suggests a positive response to the fiscal stimulus and a potential ability to weather trade-related economic challenges.
However, the German Chamber of Industry and Commerce (DIHK) has highlighted the neglect of important location policy as a reason for the economic decline. Measures to reduce uncertainties include strengthening competition, increasing public spending, alleviating the skilled labor shortage, and implementing a more business-friendly tax policy.
The federal government's special fund, which provides billions for infrastructure, can provide more security and create perspectives for industries like construction to finance capacity expansions confidently. The DIHK also notes that the new federal government is hoped to provide better framework conditions and more momentum for the economy.
Astrid Klesse from the Federal Ministry of Economics states that public investments can serve as a lever for private investments. The hope is that these measures will help stimulate growth and provide a robust foundation to tackle trade-related uncertainties.
Community policy and employment policy are key areas of focus in Germany's fiscal stimulus packages, aiming to create better framework conditions for businesses and stimulate private investments. This is part of a broader strategy to tackle trade-related uncertainties and enhance Germany's competitiveness in the global economy, as well as reducing uncertainties for long-term investment decisions. The unfolding economic developments will significantly impact finance, business, politics, and general-news sectors.
