The collapse of Germany’s government coalition and the election of Donald Trump as the next US president are exacerbating uncertainty for the struggling German economy, according to economist Achim Wambach.
Wambach nevertheless sees opportunities for some firms.
Germany’s centre-left coalition was “barely functioning and political uncertainty in Germany is already very high,” the head of the Leibnitz Centre for European Economic Research (ZEW) told dpa.
On Wednesday Chancellor Olaf Scholz fired his finance minister, Christian Lindner of the pro-business Free Democrats, and announced a vote of confidence in parliament which would likely trigger early elections early next year.
New elections offered the Germany chance of a fresh start, Wambach noted, while warning that the need for reform was greater than ever.
The Trump factor
He expressed concern about the impact of Trump’s election. The designated US president has announced new tariffs of 10 to 20% on imports from Europe. However he has also spoken of imposing tariffs of 60% on China, which would put Europe at an advantage.
Nevertheless, German exports to the United States, its most important market, would become more expensive due to the tariffs. Economists fear a trade war between the European Union and the US.
Warmbach said this would particularly impact Germany’s chemical and pharmaceutical industries, as well as mechanical engineering, given their significant exports to the US.
Not all bad
For German companies already producing in the US, there could be opportunities however.
“Trump will likely not only increase tariffs but also cut corporate taxes. For some German firms there, Trump’s election is good news,” the economist noted.
Last year, companies in the pharmaceutical and chemical sector invested heavily in the US, attracted by low energy prices and a multi-billion-dollar subsidy programme. Moreover, German car manufacturers have had large plants in the US for years.
Trump’s election is likely to make the US even more attractive as a location, according to Wambach. “Companies will react to this and further increase local production there,” he said.
For Germany however, this is bad news.
Excessive red tape
“Germany risks further losing production and research, and thereby patents, to the US. This is a major problem for jobs here.”
It was therefore all the more necessary for Germany to reform, for example by reducing bureaucracy, Wambach noted.
He also called on the EU to “shed self-imposed shackles,” pointing to complex regulations like the EU Supply Chain Act and the General Data Protection Regulation.
Wambach had little hope of Germany carrying out the necessary economic reforms, noting that this would require the government and opposition to collaborate on developing a comprehensive concept. This was hard to imagine in the current environment, he noted.
