Germany, as Europe’s largest economy, has faced a difficult period in recent years. The impact of high energy costs, structural constraints and slowing growth in China has affected the country’s economic performance in recent quarters, prompting comparisons with the late 1990s being described as the “sick man of Europe”.
Despite these economic headwinds and fears of a looming recession, German companies have shown resilience. in Luck The first-ever ranking of Europe’s 500 largest companies by annual revenue, Germany stands out with the highest representation, with a total of 80 companies in the ranking.
The country’s engineering prowess has become known thanks to its ancient automobile industry. Volkswagen ranked second on the list with revenues of $293.7 billion, while Mercedes-Benz and BMW ranked No. 9 and No. 12, respectively.
But that’s not all, some of the largest energy and financial sector companies in continental Europe are also based in Germany. For example, Uniper, the state-owned energy company that operates in about 40 countries globally, is third on the list, while insurance company Allianz is 15th on the list. Other big German names include pharmaceutical giant Bayer, airline Lufthansa and sports brand Adidas.
The rankings highlight Germany’s position as a pivotal business hub in Europe, even as it struggles to meet the challenges posed by easing business activity. The country, which relies heavily on manufacturing, saw its economy contract in the July-September period by 0.1% on a quarterly basis (and 0.4% on a yearly basis) after a few months of stagnant growth.
Underdeveloped German economy
Not so long ago, Germany was viewed as an “economic superstar” – it is the fourth largest country by GDP and has earned a reputation as an unparalleled industrial powerhouse.
However, a range of factors have affected the German economy in the past two years.
The Russian invasion of Ukraine has put Germany in a difficult position because it has relied heavily on energy imports to meet the country’s fuel needs as well as those of its industries. High energy prices in the economy kept prices high for most of last year and early this year, and high interest rates continued.
These forces also led the country to fall into a trade deficit in July 2022 for the first time in three decades.
Germany’s manufacturing sector, a historically important sector in its economy, is witnessing a decline amid a slowdown in global demand, especially from China.
Supply chain disruptions and increased competition also pose new threats to Germany’s leading auto industry. In September, industrial production fell by a more-than-expected 1.4%, sending an ominous signal for the coming months.
The country slid into recession earlier this year, and experts believe it risks ending 2023 the same way.
“After recession at the start of 2022-2023 and zero growth in the second quarter of 2023, the economy is going through a long period of poor performance, with Germany being one of the few countries where GDP is below its level before the start of the war in 2023.” Ukraine (-0.2% between Q1 2022 and Q2 2023),” Stefan Kulyak, an economist specializing in OECD economics at French bank BNP Paribas, wrote in a research note in September.
Germany also faces structural challenges including high corporate taxes and a lack of investment in digitalisation, infrastructure and education. Christian Sewing, CEO of Deutsche Bank, acknowledged these challenges in September.
“We will become the sick man of Europe if we do not address these structural issues now,” Sewing said during the Handelsblatt Banking Summit. luck. “There is a desperate need for change here.”
Rocky road ahead
While a large number of sources, including government sources, expect the German economy to contract in the fourth quarter, the country’s inflation rate has begun to slow.
In October, inflation fell to a two-year low of 3%, which could mean lower prices for consumers in the coming months.
But given the range of challenges Germany is dealing with, a marked improvement in growth looks unlikely even next year, according to ING’s global head of macroeconomics, Carston Brzeski.
He added: “It appears that the German economy will remain in the twilight zone between slight contraction and recession not only this year but also next year.”