Germany economy: "A lot of German industries are no longer competitive"

CGTN Europe

CGTN Europe interviewed Marc Ostwald, Chief Economist & Global Strategist, ADM ISI

Transcript

00:00Mark Oswald is Chief Economist and Global Strategist at ADM Investor Services International.

00:05He joins us now. Hello, Mark.

00:07So, the Chancellor-in-waiting, Friedrich Mertz, says Germany is back on track.

00:11But is it clear what that actually means for the economy?

00:16Well, he says it's back on track.

00:19And certainly, if one looks at it from the perspective of what has been done to reform the debt break,

00:26above all, for infrastructure and defense spending, one could say so.

00:31But one has to say it's not just a question of changing those budget rules.

00:39There are many more profound changes which need to be made.

00:45And above all, planning reform needs fundamental change in Germany.

00:51And that will be the decisive factor, getting a lot of the planning reforms through

00:58in deciding whether this extra trillion dollars, a trillion euros, sorry,

01:05of potentially available spending is going to be used effectively.

01:10Just give me more detail on the planning reform.

01:14Are you referring to the decision to take off this break on debt levels?

01:23No, no.

01:24What this boils down to is there's a big legacy from the Marshall Plan after World War II,

01:33where a lot of money was given to Germany, obviously, mostly by America.

01:37But every penny that was, or every fennec, as it was then, that was spent,

01:44had to be accounted for to the three allies in charge of West Germany.

01:51Not a lot has been done to change that so that you have now a process which is so incredibly wasteful

01:59because there are meetings to plan, meetings about meetings, which will plan more meetings.

02:04As but one example, the Federal Audit Office in Germany estimated that something in the region of 150 to 175 billion euros

02:16has been wasted on planning related to the energy transition in Germany.

02:22That is a spectacular waste of money, and it's a good example of exactly why that planning reform needs to change.

02:29And it has to change at federal, at state, and at municipal levels.

02:33And that's going to be the real challenge because getting agreement across states and down to the municipal level will not be that easy.

02:43So we've got legacy and very current day problems.

02:47This 90-day pause on tariffs.

02:49You know, if you look at the fact that Germany, being such a massive car manufacturer,

02:53is still having to deal with this 25% car tariff hike,

02:58do you agree with those very dire predictions for Germany's growth prospects?

03:03Do you think it could even slip back into recession?

03:05I was never of the opinion that it was going to do anything other than teeter around zero in terms of growth.

03:17The 0.8% that the wise men had penciled in for this year in September last year always seemed to be a very remote prospect.

03:27And we've seen it, you know, looking at incoming data, you know, industrial production has been contracting in Germany since May of 2023.

03:39So, you know, that basically tells a story in itself.

03:42And the problems, you know, the problems of the German auto sector, you know, are well documented.

03:49They're not competitive, above all with China.

03:52And that's true of a lot of German industry.

03:56It's no longer competitive.

03:58And so there needs to be incentives put in place to actually improve productivity

04:06and incentivize retraining where necessary.

04:11And then the really bigger problem is in terms of all this defense, above all the defense spending,

04:18but also infrastructure spending, you know, is there capacity at a domestic level to increase output sufficiently?

04:27Yes, there is some spare capacity definitely in the auto sector to meet the extra demand that's going to be there for defense spending

04:35and indeed infrastructure spending.

04:37And then, on top of all of that, particularly given the topic of immigration in Germany is such a hot one,

04:46will there be, will they have sufficient labor skills to meet that extra demand?

04:53Absolutely.

04:54A big list of challenges there.

04:56Thank you so much, Mark Oswald, Chief Economist and Global Strategist at ADM Investor Services International.

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