BSR Policy Briefing 2/2024

Germany’s economic structure in times of multiple shocks
By Michael Grömling

The German economy is experiencing its longest period of stagnation since the Second World War. Since 2019, there has been no dynamism in the economy as a whole. This is the result of multiple shocks and the associated adjustment burdens caused by the pandemic. These have been weighing on the supply and demand side of the German economy for several years. The burdens of the Russian invasion of Ukraine and geopolitical uncertainties have been impacting the economy since the beginning of 2022. In addition to the high cost of materials, energy costs have also risen sharply. The associated inflation is curbing overall economic demand. Geoeconomic uncertainties and trade distortions as well as high inflation rates are curbing the propensity to invest and consume worldwide. The German economy is generally struggling in such a weak global environment. Due to its strong focus on global markets and therefore its high export ratio, it suffers more than average from geoeconomic shocks and a weakening global economy. The general drivers of the structure of an economy – changing preferences, internationalization, technological changes – are influenced on the one hand by the pandemic and the geopolitical disruptions in the wake of the war in Ukraine and the repositioning of major emerging markets. On the other hand, major megatrends – demographic change, climate change and scarcity of resources – are also having an impact on the economic structure in Germany.

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