Germany’s Economic Crisis Explained

In 2019, Germany reached a record low rate of unemployment since 1966: 2.9 percent. Its GDP is the third largest in the world, just after China and the US, and equal to 17 European countries combined. It is also the world’s third largest exporter. In numbers and statistics, everything seems fine. So why is everybody talking about Germany’s economic crisis?

The first obvious issue: China. In sectors like cars, China was always Germany’s biggest client. ‘Made in Germany’ meant quality; ‘Made in China’ meant cheap. This has completely reversed: companies like Volkswagen stopped being China’s top-selling automaker while, if you observe closely, the presence of Chinese car manufacturing companies, like BYD or Lynk&Co, has increased in the past few years. China now offers high quality cars—in some cases, more reliable or durable— for a fraction of the price. They manufacture about 60 percent of electric cars globally. Their advantage? Playing dirty, or at least, by a different set of rules. Lower salaries, lower chain of supply costs and, of course, leverage in allies: Russia, which leads me to the next problem.

To write an article where Germany's economic crisis is explained, it's important to mention Russia. It’s been more than 4 years since Russia invaded Ukraine. Europe feels the loss greatly whether it’s to a personal, patriotic, political or economic level. In the economic case, Russia’s energy restriction crumbled Germany’s whole construction process. Throughout history, we learn how much we depend on somebody or something only when we lose it. Of course, Belgium, Norway and The Netherlands stepped in and are the countries’ main energy suppliers, but at a greater cost in the long run, reducing profits.

Another question is not who Germany depends on, but who depends on Germany. As the leading economy in Europe, many other countries rely on its supply chains for their own products, which means that if its economy shrinks, the other economies will follow.

In addition, a struggle is the ageing population: the number of people above 65 in Germany is expected to grow to 24 million by 2050. This is dangerous because there are more pensions to pay, and less people to pay them. And of course, for big companies, there are fewer skilled workers to hire. 

Since Germany has a risk-averse working culture, AI development is not exactly competitive but rather slow. This gives another advantage to Chinese industries with AI-automated factories that intend to maximize profits in the future.

Last but not least, joining the EU can bring more disadvantages to stronger economies than advantages. For example, if Germany used its own currency instead of the euro, they could use its flexibility to reflect on their own productivity and growth. Moreover, they sometimes have to compromise part of their earnings to support members of the EU that are in debt.

Germany’s economy has survived—and even come back stronger—through two world wars, hyperinflation crisis in 1923, the Great Depression, the financial crisis in 2008 and a global pandemic. The question remains: will it be able to survive this, too?