Labor shortages, the transition to renewable energy, and soaring inflation are expected to negatively impact Germany’s long-term economic growth, according to Clemens Fuest, the president of the Ifo Institute for Economic Research. Fuest emphasized that labor shortages in various sectors are the greatest burden on Germany’s economy, and this trend is likely to continue slowing down growth in the coming years. The economist attributed the decline in new workers to demographic trends.
Additionally, Fuest highlighted the negative impact of the energy transition on Germany’s economy, noting that this factor is often underestimated by policymakers. The termination of nuclear power generation in Germany, coupled with a shrinking supply of Russian gas, has led to a shortfall in electricity supply. As a result, Germany has had to increase its electricity imports. Fuest warned that electricity prices in Germany are expected to remain permanently higher than in other countries.
The ongoing slump in industrial production has also affected various industries in Germany more severely than anticipated. Economists have repeatedly warned that German companies will feel the global problems more intensely due to the scarcity and rising prices of raw materials and energy. The chemical industry in particular has expressed concerns about high energy costs, with some companies considering relocating parts of their production abroad. Fuest stressed that these plans should be taken seriously.
Furthermore, businesses and industries in Germany are increasingly pessimistic about the country’s economic outlook. Weaker external demand, a lack of orders, shortages of qualified workers, and tighter monetary policy have all contributed to this sentiment. Germany’s economy officially entered a technical recession in the first quarter of the year, contracting by 0.3%. It is projected to shrink by an additional 0.5% by the end of the year.
In summary, labor shortages, the energy transition, and inflated prices pose significant challenges to Germany’s economic growth in the long term. Addressing these issues and finding solutions to attract and retain workers, ensure stable and affordable energy supply, and boost industrial production will be crucial for the country’s economic recovery and sustainability.