The future of Germany as an automaking location

For the first time in five years Germany is back in recession. Economic output has been on the decline since the second quarter of 2008. The financial markets crisis and the global economic downturn will weigh heavily on growth in 2009. Gross domestic product will continue to contract in real terms at least until the middle of this year. The loss of major sales markets and the surge in the euro – even though it has retraced slightly – will likely cause exports to decline markedly in real terms for the first time since 1993. Shrinking foreign demand together with declining profits in many sectors will lead to investment in plant and equipment contracting by 10%. Despite fiscal stimulus packages private consumption is scarcely likely to increase by more than a tad again in 2009 in the face of significantly falling employment and a rising savings ratio. [more]

Gross domestic product is less and less often used as the sole measure of a country's progress. Broader measures of wellbeing are moving centre-stage. Many theories of societal progress use similar variables, which tend to develop hand in hand: life satisfaction, freedom, trust, education, income, employment, government effectiveness, the quality of democracy, corruption reduction, tolerance, participation and innovation. While Scandinavian countries are in the lead in many aspects, Germany has room for improvement, particularly in terms of education, employment, government effectiveness, corruption and the quality of democracy. To achieve sustainable progress all sectors of society must be involved: federal, state and municipal policy-makers, businesses and individual citizens. [more]

Recent progress on budget consolidation notwithstanding, there is still no consistent focus in Germany on higher-quality public finances, on either the expenditure or revenue side. What is more, the institutional fiscal policy framework is not state-of-the-art. In this paper, which also features an article by invitation from the Federal Ministry of Finance, we examine other countries’ experience in improving the quality of their public finances and discuss the conditions for political success – on both the federal and state level and EU-wide. [more]

Happy regions in Germany share many things in common: they all score well not only in terms of life satisfaction, but also with regard to trust in fellow citizens, state of health, unemployment, birth rate and income. This is in line with DB Research’s analysis at country level. The regions of Donau-Iller, Ostwuerttemberg, Osnabrueck and Hamburg-Umland-Sued achieve particularly good scores. There are no urban agglomerations in the uppermost ranks, though. The east German regions bring up the rear in this ranking. Our analysis suggests that well-being can be shaped and fostered on a regional/decentralised basis with a comprehensive policy approach. [more]

With Germany's Grand Coalition two years into its first term, it is time for a midway review of what the government has achieved so far and a look at what the second half of the legislative period might bring. The Grand Coalition still lacks assertiveness in its economic and social policy. Reforms of corporate and investment income tax have been addressed only half-heartedly; the tax landscape is a work in progress. Structural energy and environmental policy reforms will be launched. The higher cost of environmental awareness should be another reason to lighten the tax and contributions load. [more]

The succession gap in Germany’s Mittelstand (small and medium-sized enterprises, or SMEs) is overstated. Attractive businesses have no difficulty finding new owners these days. However, with succession solutions outside the proprietor families on the increase, the successful, typically German (family) business structure could start to crumble. Might this also impair the German Mittelstand’s business capital – high flexibility coupled with organically evolved trust? In the long term many SMEs are looking at a bright future. Crucial to this – besides the efficient organisation of generation change – are new forms of cooperation and modern financing instruments. A better political environment for business start-ups and a more open-minded attitude to the immigration of business talent would strengthen the entrepreneurial landscape as a whole. [more]

In the coming decades, the demographic changes looming ahead will hit Germany with an impact never felt before. This applies not only to the pension system. It holds equally for the labour market, and will entail repercussions for wages and interest rates and thus growth potential and international capital flows. DB Research has analysed the complex interplay of these factors by using an overlapping generations (OLG) model. [more]