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DVFA Monthly Question: Politics sets the wrong course

In the latest edition of the DVFA Monthly Question, the DVFA Investment Professionals identify bureaucracy reduction and the excessive welfare state as main causes for the current weak economic growth.

Is Germany once again “the sick man of Europe”? A good 20 years after the British “Economist” tackled Europe’s largest economy with this claim, the question is being discussed anew in the media. At present, too, it is mainly structural causes that are identified as the reasons for the current weakness in growth. Are we only experiencing doom and gloom or a real decline? And if it is a real trend – what can reverse it? In the latest monthly question, DVFA’s investment professionals were asked about this. “In fact, we see a clear tendency for experts in the financial industry to understand many problems as structural,” says Peter Thilo Hasler, DVFA board member. His colleague on the board, Roger Peeters, adds: “Issues such as bureaucracy, high tax burdens and an overly expensive welfare state are recognised as the most important problems. So it’s not surprising that the experts mainly name politics as the responsible party.”

On the causes of the economic weakness

The first question asked about the causes of weak growth. While the DVFA members agreed that it is primarily structural causes that are responsible for the current weak growth, there is disagreement about how to combat them: at 51%, the majority of respondents do not see a short-term solution. 44%, on the other hand, are in favour of a fundamental rebalancing along the lines of Thatcher’s in the 1980s.

In contrast, only 3 % of the experts surveyed consider Germany to be a “healthy core” location. Just as few (against the background of full employment and the country’s general prosperity) consider criticisms of the location to be interest-driven.

Decline of Germany as a business location: the factors

The DVFA investment professionals were asked to identify those factors from a total of six that they considered relevant to the crisis – multiple answers were possible. All in all, all answer options received high individual approval ratings. The most prominent factor was the bureaucracy that has got out of hand, which is massively paralysing the economy in the form of constantly new regulations and documentation and was named by 76 % of the respondents.

In second place, with 56% of the votes cast, was the overstretched welfare state. The demand here goes in the direction of greater wealth creation instead of relying only on redistribution.

42% focus on the far too high tax and contribution burden on workers and companies. The high electricity prices associated with the energy transition were identified by 39% of respondents as the most serious shortage, and for 37% the shortage of skilled workers plays a decisive role, because companies cannot find suitable candidates even for simple jobs. However, 32% of respondents also see companies as partly to blame because they are not helping to shape important trends such as AI.

Those responsible for the current weakness of the location: the political decision-makers

Every successful therapy requires a diagnosis. A clear majority of 65% sees politicians as responsible for the current state of Germany as a business location. The greatest deficits are diagnosed in the areas of taxes, bureaucracy, energy supply, immigration and education.

All other answer options rank far behind. For example, 21 % of respondents said that Germans have simply become comfortable after decades of peace and prosperity, while people in other regions are much more flexible across the board. 9 % diagnosed wrong decisions by business leaders as the main cause of economic weakness. Because companies have failed to act earlier and more strongly on the trends of the future, the problems are seen as homemade. On the other hand, only 6% of the respondents think that the capital market is “underdeveloped”.

Central requirement for the change towards more prosperity: reduction of bureaucracy

Next, respondents were asked about possible solutions. The results of the survey were clear. A massive reduction in bureaucracy and the examination or abolition of superfluous regulations are called for. That is the opinion of 83%.

Reducing taxes and duties is seen by 49% as a possible way forward. Work and investment must become worthwhile again. 36% of DVFA professionals, on the other hand, believe that immigration, especially of qualified staff, must be made much easier if the resulting gaps are to be filled when the baby boomers retire in the medium term. 11%, on the other hand, see the debt brake as the cause. It should be abolished; Germany must take on additional debt in order to generate growth.

A look into the future of employment rates: Services and AI as job engines

Finally, respondents were asked about the future of employment in Germany. According to the respondents, there will be a massive shift of jobs towards service occupations (46 %). 44 % estimate that the shortage of skilled workers will continue to increase and that Germany can only solve this problem through additional immigration.

That Germany will remain an important export nation is seen by 38 % of those surveyed. They believe that the chemical and automotive industries will master the challenges through innovation, maintain their competitiveness and continue to offer well-paid jobs.

28 % of the participants expect bleak prospects for energy-intensive industries: They will no longer exist in Germany in ten years and their migration is unstoppable. At the same time, the unemployment rate is rising significantly.

Classic apprenticeships with lucrative job opportunities are becoming more attractive to young people, say 25 %. The answer option was aimed at the repeatedly lamented general surplus of academics with the concomitant devaluation of apprenticeship occupations including the dual education system.

Source: DVFA Monthly Question October

This is an automated translation of the German original.

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