Germany’s doom and gloom goes beyond the heavy reliance on its automotive industry, shedding light on the variety of structural issues, where solutions are long overdue. Economic forecasts predict a year of stagnant levels of growth for 2025, projecting GDP growth to reach 0.7% in 2025 from the expected -0.1% in 2024, an improvement but definitely not impressive. While economic growth remains dampened, more internal and external political issues remain unaddressed.
It is key to establish the heightening trade tensions between Germany and China and what Germany is attempting to do to reduce its exposure. Germany’s economic structure which once promoted significant trade surpluses, has now turned on its back, with intense competition and the Russia-Ukraine war pushing Russian oil prices upwards. Chinese automotive companies have not just established their competition in the selling and production of these vehicles but even down to procuring lithium and copper yielding lands in Africa, taking full control of the value chain and battery production. In contrast, it seems like Germany continues to trade with China, despite the geopolitical risks, with data suggesting that half of EU27’s investments still go to China. Going forward, there is a growing urgency for Germany to diversify their trade relations and find new trade patterns that reduce their exposure to this region. Though China is no longer Germany’s top export destination, as this position was taken over by the US, Germany still imports almost $13.6bn worth of essential inputs from China.
Perhaps what is less discussed in such outlooks is the migration levels in Germany that is carving noteworthy changes in the country. Germany faces one of the largest influx of refugees within the EU, which could have a ripple effect on its labour market structure. Historically, Germany has been a safe haven for refugees all over the world, as the wide range of support systems and policies allow refugees to gain access to education, employment and aid. Olaf Scholz’s predecessor, Angela Merkel, had set the foundations of these pro asylum-seeking policies that are now starting to shatter as Germany faces infrastructural and cultural constraints in permitting more refugees. More recently, Germany has experienced an increase in the number of Syrian refugees due to the heightened tensions with Assad.
Though the public doesn’t harbour strong opinions against the asylum seekers, there is a proportion of the public that do have concerns on future implications and allocation of resources within the country. With Germany freezing asylum seeking applications from Syria, due to the collapse of Assad, this could mark one of the first conclusive moves to reduce the number of asylum seekers entering Germany.
Asylum seekers have also contributed greatly towards employment, out of 890,000 people who came into Germany, almost 307,000 were employed, highlighting the fact that they have indeed contributed towards the economic growth. Given Germany’s demographics, the rise in immigration could offset the higher proportion of aging population, an ongoing challenge within the Eurozone.
Most critically, political turmoil within Scholz’s coalition party could indicate fragmented policy making in Germany and a fundamental weakness within the Bundestag (Germany’s Federal Government). Scholz’s firing of Germany’s finance minister, Christian Lindner, was a move that may have ignited conflict between the three parties, that were once in union under Scholz. The three parties include Social Democratic Party (SDP), the Green Party and the Free Democratic Party (FDP), parties that tend to gravitate between centrist views. Scholz’s approach to regulation on migration could be a key determinant in winning the early elections, scheduled for this February. Currently, the Alternative for Germany (Afd) party, a far-right winged party, has recently gained support from the public, from promoting anti asylum-seeking policies.
Before the elections, a confidence vote was organised for December 11th, that had the objective of confirming whether the Bundestag still has confidence in Scholz. The result from this would clearly encapsulate whether the government still has faith in Scholz, significantly impacting the early elections.
Overall, Germany finds itself in a precarious political position, both domestically and internationally. Scholz’s ability to navigate these challenges will play a crucial role in shaping the country's political stability and economic performance.