Executive Search in Germany – 2021 Outlook
Government Support Softens the Blow
Germany, like the rest of the world, has been hit hard by the Corona pandemic. With a lockdown in March and April 2020, the German economy screeched to a standstill. In the Summer it started to regain its footing and was doing reasonably well until the second wave hit in November / December 2020. At the time of this writing, mid-January 2021, Germany is in lockdown again.
The lockdowns mainly involved restaurants, hotels, the arts (all performances were banned) tourism and travel industry. The manufacturing industry was spared and during the whole lockdown period, companies continued to produce. This ameliorated the lockdown to a certain extent.
Furthermore the German government instituted “short-work” payments, allowing companies to employ people only a certain percentage of the time and receive their salary from the government. This allowed companies to retain their work forces, keeping the companies intact. As a result, unemployment has not gone up as much as it would have otherwise. Furthermore, the government distributed generous subsidies to many companies, large companies receiving huge loans in part, such as Lufthansa, TUI and others.
All of these measures helped to soften the blow of the pandemic so that companies continued operating. In 2021 many are expecting a good year. Part of the optimism is fueled by the vaccines into which many have put a lot of hope to help stop the pandemic. Many expect a large economic resurgence as soon as the pandemic dies down. Of course it will depend a lot on how quickly the pandemic can be controlled.
Major Points for the German economy in 2021:
Value Added Tax:
This had been lowered mid 2020 from 19% to 16% in an effort to jump start the economy. This is returning to the 19% level as of January 1st.
CO2 pricing and national emissions trading launched:
The new year will see the launch of national carbon dioxide pricing for heating and transport in Germany. Companies that put heating and fuel into circulation will have to purchase certificates for this in digital form as “pollution rights.” The CO2 price for each ton of heating oil, liquid gas, natural gas, coal, gasoline or diesel therefore initially accrues to suppliers, who then pass it on to consumers. The fewer allowances are issued, the higher their price rises, and with it the incentive to save CO2 or invest in carbon dioxide-saving technologies.
The new national emissions trading system (nEHS) will initially start with a fixed price of ten euros per metric ton of CO2, rising to 35 euros per metric ton by 2025. The aim is to enable industry and consumers to gradually adjust to higher fuel and heating costs.
On September 26th national elections will be held. Angela Merkel has indicated she wants to retire, so the race is open to replace her. The conservative CDU/CSU is ahead in the polls at the moment but it is too early to predict anything. The outcome of the election will probably not affect the 2021 economy of Germany.
Since China opened much earlier than Europe and China being an important market for German companies, these companies have benefitted from resurging demand from China. This is expected to continue in 2021.
With the USA being a major trade partner for Germany, there are hopes that with the end of the Trump era, the relationship between the US and Germany will be normalized. The US remains a strong market for German goods. There are hopes that tariffs will be reduced under President Biden. This will certainly take a while but it does make German companies optimistic.
With a last minute deal being reached between Britain and the EU there is hope that the worst trade disruptions will be avoided. Still, it will take time to understand what was agreed to and to put new procedures in place. This will certainly disrupt trade for the first half of 2021. After that we would expect things to smooth out
With Brexit we expect to see an increase in the number of UK companies setting up branches or subsidiaries in Germany and other parts of Europe. The financial industry is already busy moving things around but other industries, while slower, will certainly be following suit.
The automotive industry is one of the most important industries for Germany. Therefore the slump in sales hit these companies and their suppliers particularly hard. In addition, the traditional companies have been slow to jump on the electrification bandwagon. Many companies had offered EVs but sales were very poor at the time. In the meantime, demand seems to be increasing (fueled by German subsidies of up to about € 5000 for the purchase of an EV). In January 2021, German automotive manufacturers are reporting that they have to shut down their factories due to lack of chips. They have been surprised by the large order inflow, boding well for the many ancillary industries.
Highlights of Germany
Of course there are winners in the Corona crisis as well. The German biotech industry has received a huge boost by the development of the first accepted vaccine by BionTech. A second company, Curevac, is hot on its heels to also get a vaccine approved. Some service and delivery industries have profited from the crisis. Startups, mostly in Berlin, while hit, seem to have weathered the storm with many coming out stronger.
Overall, while there are of course many problem areas in the economy, Germany has nonetheless come through the crisis reasonably well, this also due to the previous years when the government has been reasonably frugal, running budget surpluses. This gave the government the latitude to come to the aid of many companies hit by the crisis and helping their survival – which in turn should help the economy in 2021.
Contact the author Gerhard Benneck at firstname.lastname@example.org
For information on executive search services in Germany, visit Cornerstone Dusseldorf