According to estimates by the Leibniz Institute, annual growth of 0.7 percent is only the medium-term potential of the German economy.
The German economy is expected to grow by 0.3 percent in 2023. Headlines like these would probably have triggered panic a few years ago. Today, looking at the economic forecasts of the leading economic research institutes, one can state succinctly that it could have turned out worse.
It is true that the prospects for the German economy appear modest. But there is also light at the end of the tunnel. We just have to get used to the fact that this is the new normal and not a blip triggered by global crises. This insight must then also be reflected in economic policy.
There is no question that we are experiencing an economic turning point. The war in Ukraine is raging, inflation is rampant, and international relations are under scrutiny. The Handelsblatt Research Institute expects the German economy to shrink slightly this year.
In any case, we will no longer be able to continue the old days of several percentage points of economic growth every year. According to estimates by the Leibniz Institute, the medium-term potential of the German economy is 0.7 percent annual growth. The growth that was lost due to the war and the corona pandemic will hardly be able to be made up for in the next few years.
This is not a drama either, but the expected development. The German economy is currently transitioning smoothly from a period of multiple crises to a new phase of shortages. In particular, labor is becoming scarce. Demographic change will have a full impact over the next few years. And there is already a shortage of workers in many sectors.
It’s time for “transformative supply-side politics”
This must also be reflected in politics. There is no growth euphoria in other European countries, but they are a little further away from zero than in Germany. That can also be done here. To do this, however, sustainable structural reforms must be implemented – better today than tomorrow. The government needs to focus on increasing scarce resources at least somewhat.
What does that mean specifically? Economics Minister Robert Habeck has been ridiculed for his neologism of “transformative supply policy”. But in essence, the Green politician chooses the right approach.
Today, looking at the economic forecasts of the leading economic research institutes, one can state succinctly that it could have turned out worse.
(Photo: imago/Hans Blossey)
The federal government must succeed in teasing every little bit out of the scarce supply. Every additional person who works is a gain for the economy as a whole. The new strategy for the immigration of skilled workers is an important step. But the question must also be raised as to how people can work longer.
In addition to the number of workers, it is also important that they are deployed where they bring the most benefit. It is not easy to bring all this together with the transformation to climate neutrality. It might be logical to simply give companies the money they need for new technologies. But this leads to the transformation becoming unnecessarily expensive.
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It is wiser to raise the price for climate-damaging behavior as much as necessary. Then the companies switch their production, which continues to make profits. Other companies stop working. This frees workers for areas in which they bring more.
Politicians should give priority to ensuring that climate-neutral technologies are worthwhile in the face of rising CO2 prices. Habeck and Finance Minister Christian Lindner have already proposed measures such as simplified depreciation rules or green lead markets. Those in government should quickly make this a reality.
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