Germany Needs a New Growth Model

Summary:

The German economy has essentially been flat for years and the growth outlook is measly. Energy prices will be structurally higher and Chinese competition is intensifying. But the government is contemplating doubling down on the industrial export corporatism that tipped Germany into stasis in the first place. Berlin will have to fundamentally reset its growth policies to emerge stronger. At home, more education spending and higher wages can help to close skills gaps, upgrading public infrastructure like railways will facilitate labour reallocation to growing sectors, while better capital markets can funnel capital to them. If Berlin embraces and shapes an EU industrial strategy instead of pouring subsidies only on its own firms, it has better odds of expanding the blossoming EU green tech supply chains, rather than disrupting them. Berlin should also use the EU as a shield from Chinese mercantilism and potential US pressure, and to open other markets. The country has the budget resources, innovation prowess, skills, and appeal for migrants to help its economy adjust. The question is whether Germany has the courage to leap forward by trying something different.

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