Executive Search in Germany – 2020 Outlook
Germany Slows Despite Record Employment
Despite employment at a record high, the growth of the German economy has slowed in the last year and is expected to be slow in 2020. Government advisors, like other banks and researchers, have cut their forecast sharply from 1.8 to 1.0 percent growth
The reason for the poorer business outlook is the external environment, “which is characterised by an extremely high level of political uncertainty” and which is weighing on exports. Specific issues include the following:
Automotive industry: The automotive industry with all its suppliers is an important mainstay of the German economy. However, with the move to electrification, there is a high degree of uncertainty in the industry. Electric cars require many fewer parts, causing suppliers to retrench.
While VW has made a large commitment to electric cars, other manufacturers are not as quick to move. Additionally, there is uncertainty about the future of diesel cars. Moves in Germany to prohibit certain diesel cars from the inner cities due to emissions have put a damper on sales.
Brexit: The continuing uncertainty about Brexit has also dominated German thinking in the past year and will continue to do so in the foreseeable future. That will continue even as Britain exits the EU because the exit is only a first step.
How trade agreements will be handled remains to be seen. The UK is the fifth largest trading partner of Germany with Germany exporting €82 billion worth of goods to the UK every year. Any uncertainty or restrictions in this trade is immediately felt in the German economy.
US tariffs: Germany, being a very export oriented country, suffers as soon as any restrictions are put on free trade. The US is Germany’s largest trading partner with German exports to the US worth €113 billion. Tariffs and other trade restrictions therefore have an immediate effect on the German economy.
China: A slowing economy in China hits German companies. China is the third most important trading nation for Germany (after the US and France). Therefore, the US trade fight with China also affects Germany.
Despite the economic downturn and gloomy outlook, unemployment has steadily decreased for the last 14 years to a point where it is now at 4.9%, which is considered full employment. This has a flip side, though. Of more than 23,000 companies surveyed by the Association of German Chambers of Industry and Commerce (DIHK), 49% cannot fill vacancies in the long term because they cannot find suitable workers. The construction industry in particular is desperately looking for employees, but also industry, service providers and trade.
Asylum seekers not an issue
Contrary to what newspapers may report, the situation with asylum seekers is not drastic. At this point there are about 1.7 million asylum seekers in Germany, which has a total of 81 million people. Of the asylum seekers about 35% have found a job and are working, therefore are contributing to the German economy.
Since many of the asylum seekers are young men or even children, it is likely that the positive development will continue. The asylum seekers tend to be very motivated to find a new life in Germany and therefore are putting in the effort to learn new trades, learn the language etc.
There is a fair amount of talk in Germany about the changing demographics. Germany is an ageing society with the average age having reached 44.4 years. This creates problems for the labor market with fewer younger people joining the work force. On the other hand, Germany has a fairly high degree of automation in the factories so that productivity has been rising steadily for many years.
Pension system under stress
The ageing of the society also causes problems for the pension systems however with more people receiving benefits and less people paying into the system. Furthermore, with people living longer, the pension systems have to pay for longer pension times. As a consequence, Germany raised the retirement age to 67. This happened without big protests compared to France, where retirement age is 62.
Politically German remains fairly stable. The “big coalition” continues to muddle through although unloved. Of concern is the rise of the right-wing party AfD. This party speaks to a number of Germans with the issues that it raises and, because the larger political parties tend to ignore these issues, the AfD is receiving support.
It is expected that the current government will remain in place through 2020. The next general elections will be held in 2021. With the Green party also gaining favor in the populace there are already discussions about a possible future coalition between the conservative CDU/CSU party and the Greens, particularly since Austria has just put together exactly that kind of coalition.
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