UK Edition
Germany will become the sick man of Europe if it fails to reinvent itself, the chief executive of Deutsche Bank, the country’s largest lender, has warned.
Christian Sewing told an audience in Frankfurt that the continent’s largest economy was becoming complacent after more than a decade of strong growth before the pandemic.
Mr Sewing said: “We are not the sick man of Europe. But it is also true that there are structural weaknesses that hold back our economy and prevent it from developing its great potential. And we will become the sick man of Europe if we do not address these structural issues now.”
Germany has traditionally had a strong manufacturing sector but its factories have struggled with the loss of cheap energy in the wake of Russia’s invasion of Ukraine.
The economy fell into recession last winter and is now flatlining, making it the worst performer in the G7. There are fears it may now face a double-dip recession.
The OECD, an organisation representing a group of mostly rich countries, has predicted that Germany will be the only economy in the G7 to shrink in 2023.
Mr Sewing said problems within the world’s fourth largest economy were well-known and had been so for years.
He highlighted high and unpredictable energy costs, slow internet speeds in many regions and outdated rail networks. Backlogs in digitalisation, red tape and a shortage of skilled workers is also holding back growth, he said.
Mr Sewing accused Germans of becoming “too comfortable” after the success of the 2010s and criticised what he called a “paralysing aversion to change”.
He said: “For too long, we got the idea that the economy will continue to run itself and that we don’t have to do much to succeed.
“We discuss the four-day week, the redistribution of wealth and whether growth is still desirable at all. In doing so, we negate the basic economic principle that you must do something before you get something.”
The German economy is only 0.2pc larger than it was before the onset of the pandemic, suggesting it has lagged far behind its G7 rivals.
The UK was until recently believed to have had the worst performance, but it overtook the manufacturing powerhouse after the Office for National Statistics (ONS) recently revised up its growth to 1.6pc.
The Deutsche Bank chief warned that foreign investors were increasingly turning their back on Germany, causing direct harm to the economy.
German carmakers already find themselves caught in the crossfire of an evolving trade spat between the European Union and China that could see them hit with punitive tariffs.
Meanwhile, the US Inflation Reduction Act and its access to cheaper energy threaten to suck away further investments from Europe.
Mr Sewing called on policymakers to cut red tape on banks and push for greater EU integration to tackle the economic malaise facing his country.
Lenders should be given more leeway to lend and ramp up financing of capital markets, he urged.
He said: “There are not even a handful of European banks that are globally competitive.”
Mr Sewing warned that “globalisation as we knew it no longer exists”. In response, he suggested the EU should strengthen its internal market and adopt a shared energy and education policy.
He said: “A real agenda that allows Europe more sovereignty and independence from other states and regions would be the best form of de-risking in a world of global conflict and uncertainty.”
His comments come after a report earlier this week from Deutsche Bank warned that Germany would likely face weaker growth and higher prices as a result of the transition to net-zero, ageing populations and digitalisation.
It warned that Germany would lose 1.6m to 4.8m people of working age by 2035 depending on the level of immigration.
Growth would linger around 0.5pc rather than 1pc in coming years while the inflation rate would tend to overshoot the 2pc target, analysts at the bank said.
Meanwhile, a report published this week by Unicef found that young Germans were among the unhappiest in Europe, ranking only above Bulgaria.