QNB Dissects Reasons Behind German Economy’s Underperformance

Doha: QNB expects Germanys real GDP to remain flat in 2024 and average growth of 1 percent in the next few years. The bank said in its weekly report on dissecting the German economy's growth underperformance that the German economy faces major obstacles from negative trends in the industrial sector, inadequate infrastructure and loss of competitiveness. The report said that, historically, Germany has been described as a model of high productivity, superior engineering expertise, precision, and a strong work ethic. It is no surprise that it has been the driving economic force of Europe for long periods of time, including during the post-World War II economic recovery and after the countrys unification. "However, over the last couple of decades, secular headwinds started to mount. These included negative demographic trends, red tape, policy missteps, an inability to upgrade leading manufacturing sectors and adapt to the digital age. As a result, Germanys economy started to underperform in recent years," the report added. QNB said there were three main factors driving the underperformance in economic growth of the German economy. The first is that the manufacturing sector, has become a drag growth, compared to the past when it was an engine for the economy. The bank said that adverse events including global trade tensions, a slowing world economy, the pandemic, a severe shortage of semiconductors, and the energy crisis due to the Russo-Ukrainian war. The bank noted that automobile production was impacted by a shift of consumer preferences towards electric vehicles, stricter environmental regulations, and a shortage of skilled workers. "Automobile production has fallen by 28% from the 471 thousand units per month in 2017 to 337 thousand in 2024. This is a significant challenge to the economy, given that the automotive manufacturing represents 5-7% of GDP in Germany," the report said. The second reason was that the conservative fiscal policy has led to an underfunding in key infrastructure areas, such as transp ortation, digital technology and energy, contributing to the decline in economic growth. The third and final factor according to the report was that the German economy faces significant institutional challenges that continue to erode German competitiveness and productivity. The report cited the tax policy and business legislation, as well as rigid labor markets given strong employment protection laws and high labor costs that make it difficult for companies to adapt to changing environments. Source: Qatar News Agency