German Elections

Elections will be held in Germany this Sunday. The country is now seen as the weak brother in Europe due to competition from China and the consequences of the war in Ukraine, but Germany has enough potential to recover. It would help if the new coalition were large enough to amend the constitution. If there is plenty of room for investment, the potential for improvement will also be great.

Germany is more than just cars

The German car industry must now compete with the Chinese car industry. Instead of biting the competition’s head off, it would be wiser to focus on innovations. For example, Germany is still growing in the field of electronic optical equipment and German equipment is increasingly being used in aeroplanes. Germany is already shifting to products with a higher added value. Just as industries such as textiles and shoes previously disappeared from Europe, it is now the turn of cars.

Defence and green technology

The demand for defence equipment, deep tech and green technologies is increasing across the entire continent. Germany specialises in these areas and leads Europe in patents in new technologies. It also tops the ranking of developed countries in the IMF index of competitive advantages in green goods, far above the US and China. This includes highly efficient power stations, smart grid designs and charging technology. This technology is not so much in the hands of listed companies as it is in the hands of the Middle class.

The German Magnificent Seven

The German stock market has had a good start to the year, thanks partly to the German Magnificent Seven: SAP, Siemens, Siemens Energy, Allianz, Deutsche Telekom, Rheinmetall and Munich Re. These companies are not so much focused on the German domestic market but are more active worldwide. Unlike the American Mag 7, this list of German companies is more diverse. This is not only from the IT sector but also from energy, telecom, and insurance sectors. Moreover, unlike the American Mag 7, these companies are undervalued, and a strong dollar helps European profits.

German elections

The German elections offer an opportunity for renewal. The likely next chancellor, Friedrich Merz, leader of the Christian Democratic Union, is expected to implement some structural reforms. Coalition politics, however, could dilute many of his plans. Regardless of the German government's composition, even marginal policy improvements could stimulate productivity growth. As indicated, the Constitution is currently holding back growth too firmly. According to the constitution, the structural deficit of the government budget must remain at a maximum of 0.35 per cent, thereby preventing the required public investments (roads, internet). Germany ranks at the bottom of the OECD in terms of these types of public investments.

Over half of Germans support amending the constitution to create more fiscal space for investments in ageing infrastructure. Since public investments are low, even a slight relaxation of the debt brake would make it possible to borrow up to 48 billion euros annually without violating EU fiscal rules. There are also other areas for improvement. Obtaining a business licence currently takes 120 days, more than double the OECD average, and the digitisation of the government is lagging. Only 43 per cent of services automatically fill in data on online forms, compared to 68 per cent in the EU. There are also political obstacles to increasing investments and reducing the bureaucratic burden. If migration remains politically problematic, more retraining investments must be made. However, Germany is progressing in robotics, which can help free up workers for more valuable activities.

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