Opportunity and risk: German economy and dependence on China - expert opinion

Opportunity and risk: German economy and dependence on China - expert opinion

According to a report by www.businessinsider.de,

According to the Bundesbank's assessment, Germany can cope with the current weakness of the Chinese economy, but cannot decouple from China. In the event of an economic crisis in China, German gross domestic product is likely to be 0.7 percent lower in the first year of the crisis. In the second year, losses of one percent must be expected, the Bundesbank calculates in its latest monthly report.

The Bundesbank warns of the consequences of a possible decoupling from China, especially for German industry. German companies that are heavily dependent on Chinese demand, such as the automotive, mechanical engineering and electronics sectors, would be particularly affected. But small and medium-sized German companies that depend on supplies from China would also be affected by a break in trade relations. These could result in serious production losses.

The Bundesbank also highlights the advantages of economic ties with China. German industrial companies have benefited greatly from export revenues from China in recent years. Germany also took advantage of imports from China.

Regarding the German financial system, the Bundesbank stated that a decoupling from China would bring risks to the German financial system. German banks have large claims on companies and sectors that rely heavily on China, which would increase the likelihood of default on loans. A move away from China would have long-term business and economic costs, even if dependencies were reduced in an orderly manner.

In view of these assessments by the Bundesbank, it is important that German companies and the financial system prepare for the possible effects of a decoupling from China and reduce the associated risks.