Germany’s economic future is under threat due to an ageing population and rapidly outdated economic structures, warned the country’s top economic advisors on Wednesday.
The Council of Economic Experts, the government’s economic advisory body, highlighted the need for Germany, the eurozone’s largest economy, to attract more private capital from other European countries to mitigate the risks.
The German economy, already grappling with soaring energy costs and high interest rates for industries following Russia’s war in Ukraine, is expected to further contract this year.
However, the Council’s annual report, published on Wednesday, emphasised that the challenges go beyond the immediate economic downturn.
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Veronika Grimm, one of the five council members, stressed that “mid-term obstacles to growth are much more important than the current economic weakness.”
The panel’s chair, Monika Schnitzer, said that “the economic recovery in Germany is delayed — it is … still being slowed by the energy crisis and reduced real income caused by inflation.” She noted that central banks’ interest rate increases and economic weakness in China have made Germany’s trading environment more difficult, while the high interest rates are dampening investment and construction at home.
Inflation in Germany has now fallen back to 3.8 percent, its lowest level since August 2021. People’s real income should increase next year, leading to higher private spending and “a cautious economic recovery,” Schnitzer said.
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The report identified a lack of economic dynamism and investment malaise as key factors impeding growth. Issues such as an ageing population, low productivity growth, outdated industrial capital stock, and the absence of young, innovative companies are highlighted as critical areas that need attention.
In contrast to the overall economic climate, some success stories like the recent $500million venture capital raise by German AI startup Aleph Alpha have made headlines.
However, the experts caution that such cases are exceptions rather than the norm.
The Council of Economic Experts calls for strategic measures to address these challenges, including policies to encourage innovation, support the growth of young companies, and attract private capital from European partners. Failure to tackle these issues head-on could result in a prolonged period of economic stagnation for Germany.
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