As World Economy Slows, So Does Germany’s

German bosses worry about a slowdown in emerging markets and the anti-globalist mood in the West.

The port of Hamburg, Germany, May 27, 2008
The port of Hamburg, Germany, May 27, 2008 (Flickr/dmytrok)

The bosses of large German companies see dark clouds on the horizon as the world economy slows down this year.

Handelsblatt cites Heinrich Hiesinger, chief executive of the steel giant ThyssenKrupp, saying there is “massive overcapacity” in the steel market. Kurt Bock, chairman of the BASF chemicals group, said that “key markets are not growing as fast as expected.” And Wolfgang Büchele, head of the industrial gas company Linde, has complained that customers are afraid “to sign new contracts.”

These three companies are part of a wider trend, according to the business newspaper. The thirty companies that make up the DAX index were expecting sales of €80 billion but will make just €63 billion in 2015, down 5 percent from year before. Eighty of the 306 companies listed in the Prime Standard segment of the Frankfurt Stock Exchange have reduced their profits or sales.

The last time the situation was this bad was in 2009, when the German economy shrank by 5 percent during the financial crisis.

Much of Germany’s woes can be attributed to a slowdown in emerging markets, especially China.

Cheap oil, while beneficial to consumers, is also hurting the shale gas industry in the United States, which affects German companies like Siemens and metals trader Klöckner.

Globalization

Handelsblatt reports that German businessmen are also worried about a political trend away from globalization on both sides of the Atlantic.

In Hungary and Poland, two of Germany’s biggest trading partners, Euroskeptic parties are in power. In France and the Netherlands, even bigger German trading partners, nationalist parties that want to withdraw from the European Union are ahead in the polls.

In the United States, little unites presidential candidates Bernie Sanders on the left and Donald Trump on the right except their skepticism of free trade.

By Handelsblatt‘s calculation, the hundred largest listed companies in Germany generate two-thirds of their sales abroad. “German bosses might be smart to be scared.”

Policy

Germany could boost internal demand to make up for the headwinds abroad, but — as we have reported — the current coalition government is letting competitiveness languish in some ways.

While unemployment is low, the ruling Christian and Social Democrats have made the labor market less flexible. They limited temporary work contracts to eighteen months last year and have introduced a national minimum wage of €8.50 per hour that economists and employers fear will slow jobs growth.

Whereas most other European countries are raising the retirement age, Germany has made pensions more generous. Workers can now retire after 45 years on the job even when they’re only 63 years old — four years below the statutory retirement age.