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Germany’s economy could have grown 50 per cent more between 2021 and 2024 if its export industries had not been held back by problems including labour shortages and bureaucracy, according to a Bundesbank study that highlights the scale of the country’s recent decline.
The central bank’s simulation suggests German GDP would have expanded by 2.4 percentage points more over the period had exports kept pace with demand in key markets.
While the Eurozone’s biggest economy grew 4.6 per cent overall in those years, output shrank in the last two, reflecting a malaise in key export industries including machinery, electronics and chemicals.
“The loss of market share in German exports has significantly contributed to the country’s economic weakness in recent years,” the study said.
Germany’s economic downturn was particularly acute in 2022, when the energy price crisis, global supply chain bottlenecks and reduced demand from China, shaved 1.3 percentage points off growth.
But structural issues in the German economy have played an even larger role, with the Bundesbank pointing to labour shortages, sluggish productivity and mounting regulatory burdens.
German companies complain of a much bigger increase in bureaucratic obstacles compared with their Eurozone peers, such as slow approval procedures and burdensome documentation requirements. Supply-side issues alone accounted for “more than three quarters” of the loss in global market share between 2021 and 2023 in key sectors such as machinery, electronics and chemicals.
By contrast, demand-side factors — such as falling appetite for German cars, weak Chinese growth or sanctions on Russia — played a smaller role, contributing only a third of market share losses since 2017. For years, German manufacturers provided the tools and vehicles that underpinned China’s industrial expansion. But the relationship has turned increasingly competitive as China has built up its domestic industries in areas where German companies used to dominate.
According to the Bundesbank, German companies are now losing market share to Chinese rivals across a range of export markets. Between 2021 and 2023, Germany’s export losses nearly matched those of the UK after Brexit. Meanwhile, US companies gained ground, buoyed by demand for high-tech products and energy exports.
To reverse Germany’s economic slide, the Bundesbank is calling for a package of structural reforms, including better incentives to encourage Germans to work more, simpler migration procedures, reduced bureaucracy, and targeted support for start-ups and innovation.
Bundesbank president Joachim Nagel warned in a recent speech that German Chancellor Friedrich Merz’s €1tn investment programme in infrastructure and defence will not be enough on its own to reboot the economy.
“More fiscal leeway alone will not fix Germany’s growth weakness,” he said. “The causes run deeper.”
