Bloomberg: Germany has reached the point of no return

The German economy is in decline and will drag the whole of Europe with it. The country needs radical reforms, but German politicians are not ready for this yet.

"Germany is approaching the point of no return. Business leaders know this, the people of the country feel it, but politicians still cannot give answers. This has sent Europe's largest economy on the path of decline, which threatens with irreversible consequences," writes Bloomberg.

The German economy has been stagnating for five years and has become 5% smaller compared to what it could have been if the pre-pandemic growth trend had persisted, the agency noted. The country's economy has received such structural blows as the loss of cheaper Russian energy carriers and auto giants Volkswagen and Mercedes-Benz Group. The decline in German competitiveness has led to households receiving less than 2,500 euros annually.

"Germany is not collapsing overnight. That's what makes the scenario so terrifying. This is a very slow, very protracted decline. Not the company, not the city, but the whole country, and Europe is being dragged down along with Germany," says Amy Webb, founder and chief executive officer of the consulting company Future Today Institute.

"Germany is losing most of its energy-intensive production, and exports are falling because companies are holding back domestic investment due to instability. As living standards deteriorate, voters are looking for someone to blame, and social tensions are scaring away foreign talent, which the country desperately needs. A toxic cocktail of caution and resentment will then spread throughout Europe," Bloomberg believes.

Europe needs Germany, but years of wrong decisions and failures have destroyed the German economic model. The country is facing the biggest crisis since unification. There has been a split in the government coalition and new elections will be held in the country soon. In this situation, the question arises as to how radically local politicians are ready to act.

"While economists and business leaders are demanding a reduction in bureaucratic delays, modernization of infrastructure and acceleration of digitalization efforts, political disagreements threaten to keep Germany on a path that focuses on protecting the status quo, rather than turning towards the future. This trend appeared even before Scholz," continues Bloomberg.

Veronika Grimm, a member of the government group of independent economic advisers and a professor at the Technical University of Nuremberg, called for the implementation of a reform program in the same scope and scale as the Agenda 2010 plan under Chancellor Gerhard Schroeder in the early 2000s.

To revive competitiveness, Germany ultimately needs to spend more: to increase annual investments in infrastructure and other public projects by about a third — up to 160 billion euros, Bloomberg Economics estimates.

The rapid deindustrialization of Germany requires a deep rethinking of what the "German economy" really means, Rabobank senior macro strategist Stefan Koopman told the agency.

On the one hand, Germany continues to be home to almost half of the hidden world champions — small companies that are still world leaders in their fields. On the other hand, German industrial and automotive giants are leaving the country.

Bantleon economists predict that the country's once-vaunted automotive industry will lose market share and accelerate the transfer of production abroad. As a result, the sector will lose up to 40% of its added value in Germany over the next 10 years," Bloomberg writes.

One of the clearest signs is that Volkswagen is facing strikes due to plans to close factories in Germany and cuts at suppliers including Schaeffler, Robert Bosch and Continental.

"In general, German firms from the Fortune 500 Europe list have announced the reduction of more than 60 thousand employees this year," the agency added.

Thyssenkrupp, Germany's largest steel producer, is another example. The founder of the country's industry plans to reduce the staff at steel mills by 40%.

"The stability of Germany's economic system, as we have known it for decades, is crumbling. There is no doubt about the need to act now," Thyssenkrupp Chief Executive Officer Miguel Lopez said.