The mood in the German economy is improving, the risk of recession is shrinking and the DAX companies are posting the second-highest profits of all time. How does that fit in with the reports of job cuts, austerity programs and poor prospects?
Anyone listening to the German economy at the moment will mainly hear contradictions. On the one hand, the DAX companies are currently posting record profits. On the other hand, almost all companies complain about high energy costs, a lack of skilled workers or concerns about inflation. Ultimately, it is said, the recession that was believed to be certain as a result of the Ukraine war has only been postponed, but not ended. But that too has been postulated for many months, while many companies continue to report good figures. Time for a mood picture of the German economy.
One thing is clear: Many companies are doing better than they communicate to the outside world. In any case, there is no other way to explain why the DAX companies are expected to have achieved the second-best result in German economic history in 2022. Compared to the cumulative record profit of 129 billion euros in 2021, the figure for 2022 was only slightly lower at 120 billion euros. Similar developments can be seen in the smaller companies in the S- and M-Dax. Overall, the Kiel Institute for the World Economy (IfW) is now assuming growth of 0.3 percent for 2023, while the federal government is assuming 0.2 percent.
The general outlook has also brightened recently - among 27,000 companies surveyed by the German Chamber of Industry and Commerce, the number of optimistic companies has doubled to 16 percent, for example. But how does that fit together with the many individual reports about job cuts, austerity programs and poor prospects?
The most recent example was BASF on Friday. The chemical company, which accounts for almost four producers of German gas consumption, announced that it would cut 2,600 jobs worldwide. Around two thirds of this will be in Germany. The group is feeling the increased prices for energy and raw materials. The energy costs for the group increased by 3.2 billion euros in 2022, of which the main plant in Ludwigshafen accounted for 1.7 billion euros, according to the company.
CEO Martin Brudermüller was not stingy with criticism. In addition to high energy prices, Europe suffers above all from excessive bureaucracy: "The competitiveness of the European region is increasingly suffering from over-regulation. It is also suffering more and more from slow and bureaucratic approval procedures." In short: Europe is no longer economically attractive.
A diagnosis shared by the economist Rudi Bachmann from the US University of Notre Dame - especially for companies like BASF: "Very energy-intensive industries should not be competitive in Germany in the long term," Bachmann told "Capital". However, this is not the case everywhere in the EU. "For example, I see Spain at an advantage again."
In this context, IfW economist Dirk Dohse refers to corporations such as Siemens or VW, which now prefer to invest in the USA. "These are more than individual reports. In almost all cases, the energy prices in Germany, which are very high by international comparison, and the US subsidies from the Inflation Reduction Act play a role."
Basically, the development in Germany is still better than initially assumed, says Bachmann: "The combination of a strong state that knew what it was doing and flexible market dynamics ultimately ensured a good result." And Dohse also observes a high degree of resilience in German companies - especially in the large DAX companies: "The export competitiveness of the German economy is still intact if you look at the current international trade statistics."
However, this impression becomes watered down the more one looks at smaller companies. Although the IFO business climate has recently improved for small companies as well - from minus 11.4 in December to minus 7.3 points - the setbacks of the past crisis years are having an even greater impact on these companies. The threat to the existence of the solo self-employed has decreased somewhat compared to the previous month, from 16.7 percent to 14.3 percent, but is still three times higher than in the economy as a whole, according to the IFO Institute.
There are many indications that these small and medium-sized enterprises (SMEs) are particularly suffering. "Especially SMEs, which are very dependent on energy, are going through difficult times," explains Dohse. This is also confirmed by the Mittelstandsverband BVMW. At the turn of the year, it conducted a survey among its member companies. The clear result: the situation is worse than that of the Dax companies. Accordingly, the majority of members assumed a recession for 2023.
The deviation from the DAX companies is easy to explain, says Chairman Markus Jeger to "Capital": "DAX companies are global and not dependent on the local conditions like the small and medium-sized companies tied to Germany - the Taxes, duties and bureaucracy in all its forms." Current profits, which were achieved despite the increased costs, would essentially be used to improve the equity situation and for replacement investments.
Only 22 percent of the companies were able to pass on most of the producer prices that had already risen. Almost half of the companies were only able to pass on part of the increased prices to their customers, and the remaining almost 30 percent could only pass it on to their customers to a small extent. More than half of the companies expect further price increases.
Nevertheless, there are also gradations for SMEs. Some are hit harder than others, says Jeger: "Companies that produce energy intensively, for example, are hit harder than the entire service sector." What is currently causing problems for companies is not even the energy prices - but above all the business practices of the banks. "Even from long-term business relationships, reduced credit lines and interest rate increases for the use of the credit line are announced," criticizes Jeger. "There is a growing impression that banks would aim to increase their returns excessively at the expense of small and medium-sized companies." He therefore calls on the banks to "maintain moderation and balance".
But the BVMW chairman also sees his member companies in a fundamentally good position. Many of the cost-cutting measures worked, whether it was investing in energy efficiency, employee training or storing renewable energy. "Despite the multiple crises, medium-sized companies were able to prove their resilience and increase sales again in 2022," says Jeger.
BASF boss Brüdermüller is not that pessimistic about the future either. For example, he thinks the term "de-industrialization" in Germany is exaggerated. "We always tend to extremes in Germany. We will see structural changes, but that's also something normal, maybe even a good thing," said Brudermüller on Friday to ntv. "Stagnation is a step backwards. We need the courage to make changes - sometimes something goes away, sometimes something comes along. And I'm optimistic that we can manage this transformation in Germany."
The article first appeared on Capital.de
