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Sluggish Economic Expansion Lags Behind Other Nations' Rates

OECD nears the penultimate ranking

Investments face obstacles due to Trump's tariff impositions.
Investments face obstacles due to Trump's tariff impositions.

The Sluggish German Economy: Shining Bright, but Failing to Keep Pace in OECD Rankings

Sluggish Economic Expansion Lags Behind Other Nations' Rates

Promising initial numbers may not be enough to propel Germany out of the doldrums in terms of economic growth. For 2023, the Organization for Economic Cooperation and Development (OECD) predicts Germany's gross domestic product (GDP) to expand by a mere 0.4 percent—a figure that ranks among the lowest among industrialized nations. In fact, Germany will be only a phase ahead of Mexico and a hair behind Austria and Norway in the OECD's rankings.

The strong start the German economy showed in Q1, with growth in both private consumption and private investments, offers a glimmer of hope for the future. OECD experts Isabell Koske and Robert Grundke attribute this to the swift formation of a stable government and reforms to the debt brake, which have reduced political uncertainty. These improvements have, in turn, boosted consumer and investor confidence.

A silver lining can be drawn in the OECD's outlook for 2026, where the growth rate has bumped up from the previously projected 1.1 percent to 1.2 percent. However, high trade policy uncertainty, particularly due to U.S. President Donald Trump's proposed tariffs, looms as a potential hurdle for investments by export-oriented manufacturing companies.

The Tsunami of Tariffs: A Troubling Cloud on the Horizon for the Global Economy

The world's economy is expected to expand at a moderate pace, with growth of 2.9 percent in 2025 and 2026, down from the originally anticipated 3.3 percent in 2022. The downgraded prediction is a direct response to the uncertainty brought about by Trump's proposed tariffs. These tariffs have caused ripples in financial markets and stoked a sense of economic unease.

The OECD foresees the U.S. economy growing by 1.6 percent in 2023 and 1.5 percent in 2026 under the assumption that tariffs implemented in mid-May remain in place.

Source: ntv.de, chl/rts

  • OECD
  • Economic Growth
  • GDP

Unraveling the Roots of Germany's Stagnant Economy

Factors contributing to Germany's sluggish economic growth in recent years include:

  1. An Export-Oriented Economy: With a significant reliance on global trade, Germany's economy is highly susceptible to changes in demand from key trading partners like the U.S. and China.
  2. Structural Challenges: Issues such as an aging population and a shrinking workforce pose long-term implications for Germany's growth potential.
  3. Inadequate Investments: Lower levels of public and private investment over the years have left Germany with an outdated capital stock, weakening its adaptability to evolving global conditions.
  4. Global Economic Volatility: Ongoing trade disputes and geopolitical events contribute to a volatile environment for German exports, negatively impacting the overall economy.
  5. To address Germany's sluggish economic growth, it would be beneficial to revise the community policy and employment policy, focusing on attracting more investments and fostering a more adaptable workforce.
  6. The finance ministry, in cooperation with the business sector, should consider implementing long-term investment strategies to modernize Germany's capital stock and increase its resilience to global economic volatility.

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