Rating agency Scope: Germany is at the bottom of the industrialized nations when it comes to investments

Rating agency Scope: Germany is at the bottom of the industrialized nations when it comes to investments

According to a report by www.berliner-zeitung.de,
The extent of the federal government's budget drama is not yet known, but the Chancellor is already preparing the population for "difficult times". The ruling from Karlsruhe creates “a new reality,” said Olaf Scholz in the Bundestag on Tuesday. In fact, Germany is threatened with severe losses if the government is unable to pass a sustainable budget.

Because the tasks facing the German economy are immense. Financial analyst Eiko Sievert from the Berlin rating agency Scope points out in an interview with the Berliner Zeitung that “public sector investments in Germany have been significantly lower than in other large European economies for several decades.”

“The net fixed capital formation of the public sector in Germany has averaged only 0.1 percent of GDP per year over the last three decades,” reports Scope in a recent analysis. This means that Germany lagged far behind other major economies such as the United States (1.3 percent), Spain (1.2), Great Britain (0.7), France (0.6) and Italy (0.2). Because of the real need to save money, Germany has foregone a lot of money. If investments had been in line with other major economies, the German government would have invested an additional 303 billion euros over the last decade, the analysis says.

This investment backlog is becoming increasingly important, says Scope analyst Sievert in an interview, as Germany is confronted with “structural pressure”, such as demographic change and the goal of achieving greenhouse gas neutrality by 2045. Germany has a fundamental problem: “The most recent ruling by the Constitutional Court has shown the limits of the current framework for the mobilization of public resources,” says Sievert.

The fact that the International Monetary Fund (IMF) is interfering in the German debate makes clear how serious the situation is. Most recently, IMF head Kristalina Georgiewa called on the federal government to invest. “To ensure growth, Germany must invest in its infrastructure, the green transformation of the economy and in the skills of its population,” Georgieva told the Handelsblatt and three other European newspapers last Friday. “We’re not talking about trivial investments here – especially because the next step is economic adaptation to artificial intelligence.”

In a recent report, Deutsche Bank Research estimates that Germany could experience a technical recession in the second half of the year. The confidence shock caused by the Federal Constitutional Court ruling and the likely forced budget cuts next year are expected to lead to a 0.2 percent decline in annual growth, analysts estimate. Times are unlikely to get better in the long term either, and potential growth in the next ten years could fall below 0.5 percent.

Overall, the analysis indicates that Germany's investment backlog has had a negative impact on the economy and growth in recent decades. A lack of investment in infrastructure, the green transformation of the economy and in the skills of the population could lead to a further weakening of the economy. This could ultimately lead to significant problems in the German and European economies. The German government will therefore have to take measures to improve this situation and make the necessary investments in the future.