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Germany is weaker than it looks
The German economy appears to be firing on all cylinders. But under the surface lurk fundamental vulnerabilities that could hamper its long-term performance.
The German economy is firing on all cylinders. It expanded by 2.2% in 2017, the fastest pace in six years and eighth successive year of growth. Business confidence and employment are both at record highs. The government budget was in surplus for the fourth year in a row last year, by 1.2%.
Beneath the surface, however, there are several "fundamental vulnerabilities" likely to hamper its long-term performance, as Olaf Storbeck points out in the Financial Times. One key problem is the rapidly ageing population; only Japan's is getting older faster. The workforce is set to shrink and "employers are already complaining about a shortage of skilled labour".
Meanwhile, Germany has the lowest infrastructure investment rate of any large developed country, says The Economist. Tales abound of "leaky classrooms and potholed roads"; a railway route across the Danish border had to be closed early last year owing to a rotting bridge. In the World Economic Forum's global competitiveness survey in 2010-2011, Germany ranked fifth for both road and railway quality. By 2016-2017, it had slipped to 16th and 11th respectively.
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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Unfortunately the government may not fix the roof while the sun is shining, says Swaha Pattanaik on Breakingviews. Overflowing state coffers "are an invitation for the politically weakened" chancellor, Angela Merkel, to "spend her way to a coalition deal" with the Social Democrats. A "grand coalition" with the Social Democrats would rest on a lower combined vote share than ever before, says Tony Barber, also in the Financial Times, and it will be hemmed in by populists on both sides of the political spectrum. This is another factor for investors to keep in mind: German politics appears to be "shedding its reputation for being predictable".
Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
