Germany faces grim long-term economic future – expert

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A lack of workers is the “greatest burden” on the country’s economy, the Ifo president has warned

Labor shortages and the transition to renewable energy along with soaring inflation will weigh on Germany’s economic growth in the long term, the president of the Ifo Institute for Economic Research, Clemens Fuest, has warned.  

“In Germany growth will be weaker in the future,” he told the financial news agency dpa-AFX this week.  

He highlighted labor shortages in many sectors as the “greatest burden” on the German economy, saying this would “continue to slow growth in the coming years.” The economist attributed the slowdown in the inflow of new workers to demographic trends. 

On top of that, the energy transition is likely to have a negative impact on the EU’s largest economy, a factor that is underestimated by politicians, according to the Ifo president.  

“The shortfall in the electricity supply in Germany was a mistake,” Fuest added, referring to the termination of nuclear power generation in the country amid a shrinking supply of Russian gas.   

Germany had to ramp up electricity imports in the first half of the year after the government decided to shut down the country’s last remaining nuclear power plants as it moves toward renewable energy sources.   

“I expect electricity prices in Germany to remain permanently higher than in other countries,” Fuest said.  

A deeper than expected slump in industrial production has affected most of the country’s industries. A number of economists have repeatedly warned that German companies and industries will “feel the global problems all the harder” this year due to scarcity and surging prices of raw materials and energy.   

Recently, companies in Germany’s chemical industry have warned that they might have to relocate parts of their production abroad because of high energy costs. These plans “must be taken seriously,” Fuest warned.   

This comes as businesses and industry are increasingly pessimistic about Germany’s economic outlook amid weaker external demand and a lack of orders, as well as shortages of qualified workers and tighter monetary policy.   

Germany’s economy officially slipped into a technical recession in the first quarter of the year after contracting by 0.3%. Its GDP is expected to shrink by another 0.5% by the year’s end.

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