Reading time: 4 min.

 

Key Trends

1. Political paralysis in Berlin is exacerbating long-standing domestic crises such as aging infrastructure, bureaucratic red tape, and a stagnanting education system.
2. The energy crisis is acting as a catalyst, accelerating the decline of Germany's manufacturing sector through a loss of cheap energy sources.
3. Strained relations with Russia, China, and to a lesser extent the US, are further impacting Germany's export-oriented industries.
4. Structural changes in manufacturing, including scaling back expansion plans and shifting production focus, reflect the sector's struggle to adapt.
5. Frustration and disillusionment among the workforce and broader population fuel political volatility and the rise of far-right movements, threatening social stability.

 

Countertrends

Despite challenges, Germany retains pockets of strength in small, agile manufacturing firms, and ongoing efforts to invest in innovation. Germany also has a low birth rate, enabling it to potentially shrink in aggregate while maintaining per-capita affluence.

 

Analysis

For six years, Germans have witnessed a steady decline in manufacturing output. This trend has been exacerbated by eroding competitiveness, an energy crisis, and sociopolitical shifts fostering a rise in right-wing sentiment.

 

While there are pockets of resilience and innovation within certain sectors, bureaucratic hurdles and slow policy responses are hindering perceived progress both within the German populous and among analysts outside Germany. Economic ties with the US are strained, while China emerges as a formidable competitor.

 

Additionally, the disruption in the supply of Russian natural gas is delivering a blow to manufacturers. And, the proposed green transition appears to be more of an illusion than reality.

 

For instance, ESG funds in Germany have surged in popularity, reflecting a growing demand for sustainable investments.

 

However, recent exposés reveal an alarming trend: many of these funds, including prominent ones like the "Allianz Stiftungsfonds Sustainability," invest in coal, oil, and gas companies despite their green image, raising questions about the efficacy of ESG labeling and the alignment of investment practices with sustainability goals.

 

These funds have catchphrases such as “Clean Energy”, “Carbon Transition”, “Low Carbon”, or even “Sustainability” in their names.

 

One analysis of 2,168 approved investment funds in Germany found that 36 percent of ESG funds invest in coal companies and 55 percent invest in oil and gas companies, highlighting the need for greater transparency and scrutiny in the sustainable investment sector.

 

As Berlin grapples with political uncertainty and economic erosion, outsiders are casting doubt on Germany's ability to navigate the turbulent waters ahead.

 

According to Bloomberg, Germany risks further economic decline and political instability without decisive action to address structural weaknesses and foster competitiveness.

 

 

Further reading

Germany's days as an industrial superpower are coming to an end Bloomberg, 10 February 2024.

 

Germany’s ESG swindle: 36% of ESG funds invest in coal, 55% in oil and gas Die Zeit, 7 February 2024.

 

2024 EU Parliament groups clash on 2040 climate goal, in post-election preview EurActiv, 10 February 2024.