Is Germany’s Economic Model Truly Kaputt? | Kanebridge News
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Is Germany’s Economic Model Truly Kaputt?

By JON SINDREU
Mon, Aug 14, 2023 8:44amGrey Clock 4 min

More than two decades after Germany was famously called “the sick man of the euro” by The Economist magazine, investors must wonder if the country’s industrial heart is once again critically weak. This week brought more dismal German economic data: Industrial production fell 1.5% in June from the previous month, worse than analysts expected. Though figures released on Friday showed a rise in exports, the volume of goods Germany sends abroad is still close to lows plumbed in the 2009 global financial crisis.

 

German gross domestic product has clocked three quarters of negative or zero growth , making the country the worst performer among major eurozone nations since 2019. Previously it was the top performer. How long this “slowcession” lasts is a crucial question for picking stocks in Europe. Despite the recent economic reversal, the DAX has been by far the best equity index in the eurozone over 20 years, returning almost 360%.

By comparison, investing in long-stagnant Italy yielded a paltry 140% return. German industrial output has been in decline since 2018, when global vehicle sales fell for the first time in almost a decade. A postpandemic rebalancing of spending toward services has made the situation worse. Growth in China, the fourth-largest market for German exporters, has slowed.

On Thursday, shares in Siemens —the largest industrial firm in Europe—fell 5% after it cited these two factors as the cause of a fall in orders during the second quarter. Some of the grit that has gotten into the German economic machine might be hard to dislodge . Chinese carmakers have turned from partners into fierce competitors as Volkswagen , BMW and Mercedes-Benz play catch-up in electric-vehicle technology.

It isn’t just China that is seeking to substitute imports for domestic products; the Biden administration is copying Beijing’s playbook. There is also energy. At the same time as German industry has lost Russia as its main source of cheap gas, Berlin has closed the country’s last three nuclear power plants. Angst has gripped German officials and executives in an echo of worries voiced at the start of the millennium, when unemployment surged and globalisation ravaged factories.

Back then, the response was a policy package that prioritised international competitiveness, incentivising the creation of low-pay “minijobs.” The government embraced fiscal austerity and nudged unions to push for wage restraint. The result was a 20-year decline in unemployment and a current-account surplus that reached an eye-watering 8% of GDP even as the U.S. ran huge deficits. Many economists praised German labor flexibility and fiscal austerity.

Conversely, critics pointed out that surpluses made most households worse off, and that Germany’s factory-job losses were just as large as America’s. Politics aside, it was largely a fortuitous jump in foreign demand that drove growth, allowing the nation to solidify gains in industries where it already had an advantage.

“Over the last 20 years, Germany always had an external sugar daddy: China, the eurozone and then the U.S.,” said Carsten Brzeski , chief economist at ING.

The flaw in this model was that it outsourced economic policy, leading to problematic dependencies on geopolitical rivals. It also fostered an excessive focus on old winners at the expense of new digital technologies and renewable energy.  Bearish investors are right that it will take years to rectify these problems, particularly given the complexity of consensus-based German politics. Yet the German export-led model also got a lot right. As in China or South Korea, it channeled demand toward higher-productivity, higher-wage firms.

 

Unlike in the U.S., German manufacturing became more complex. That allowed the country’s industrial base to survive better than in other Western countries. In a world where nations are scrambling to reshore industries, Germany already has them. The readiest answer to its growth challenge isn’t to turn away from manufacturing but to double down by taking a page from Chinese and now U.S. industrial policy.

The German government is already doing this with semiconductors as part of the European Chips Act. Back in June, it signed off on 10 billion euros (around $11 billion) in subsidies for American chip maker Intel to build two plants, and earlier this week it committed €5 billion to help Taiwan’s TSMC   set up a factory with local partners like Infineon.

A similar approach is needed to upgrade the country’s power generation and transmission and accelerate the transformation of carmakers and other industrial incumbents. Long-term energy guarantees could stem cost swings in the meantime. Given its political influence over the European Union, it seems hard to imagine that the bloc’s green-economy push could somehow leave Germany in a less dominant position . Historically, this is one patient that always leaves the hospital.



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AACCI’s Strategic Vision for Enhancing Australia-Arab Trade Relations

The Australian Arab Chamber of Commerce & Industry (AACCI) is fostering robust trade relations between Australia and Arab countries.

Mon, May 20, 2024 5 min

In an era where global trade and international relationships are more crucial than ever, the Australia Arab Chamber of Commerce & Industry (AACCI) serves as a bridge, for cooperation and growth between Australia and the Arab nations. Led by its Chairman, Mr. Mohamed Hage, the AACCI has taken on projects aimed at strengthening relationships and fostering development across borders.

This exclusive interview explores the initiatives implemented by the AACCI to expand its presence and influence in the region including the significant establishment of a new operational hub in Dubai. We also delve into how the Chamber embraces education through training and research, its participation in major international exhibitions, and its active support for both large corporations and small businesses.

Looking towards tomorrow, Mr. Mohamed shares his vision for broadening AACCI’s reach emphasizing the importance of the on-ground operations and cultural understanding in building business connections.

-Could you elaborate on the Australia Arab Chamber of Commerce & Industry, including its objectives and main areas of focus?

The Australia Arab Chamber of Commerce & Industry (AACCI) plays a fundamental role, in promoting business partnerships and trade between Australia and the 22 Arab countries. As a member of the Union of Arab Chambers affiliated with the Arab League, AACCI focuses on strengthening trade and investment ties, across these countries.

To nurture these connections effectively AACCI has outlined four objectives: facilitating trade and investment activities, certifying documents, educating stakeholders, and offering marketing assistance.

Our initiatives are designed not only to empower trade and investment endeavors but to also ensure engagement with specific sectors that drive these activities. With an understanding of the characteristics, strengths and preferences of each country, AACCI prides itself on its specialized knowledge customized to suit the distinct business environments of these nations.

– As the AACCI approaches its 50th anniversary, what have been some of the key milestones and achievements?

I believe one of AACCI’s accomplishments is the opportunities it has opened up for numerous Australian companies to access markets, in the region. Moreover, the strong bilateral trade relationship that has developed between Australia and the 22 Arab nations over the five decades has led to trade transactions amounting to billions of dollars.

This extensive trade covers industries such as food and beverages, luxury hotels and many more services. Each successive generation, within AACCI has built upon the foundation laid by its predecessors enriching their knowledge base and expanding their range of services.

– How does the AACCI leverage its diverse leadership team to enhance trade and investment opportunities between Australia and the Arab region?

Since taking on the role of chairman, my main focus has been on expanding our presence in the region. This led to the idea of opening an office in Dubai, which symbolizes our dedication to deepening our engagement in that area. We have successfully secured the license to open our first office in Dubai after 50 years, which will serve as a gateway to the GCC and North Africa.

I strongly believe that building two-way trade and investment ties requires more than a degree of business connectivity; it demands having local representatives present in each region. With trends emphasizing strategies the value of face-to-face engagements cannot be overstated.

Setting up offices in the region is essential for the Chamber to truly serve as a link and support system for business activities. Ultimately this expansion will bring benefits to our members and partners by providing them with access, to dynamic markets and diverse prospects.

– Can you discuss the significance of AACCI’s role in cultural and business exchanges between the two regions?

The importance of understanding cultures in our operations cannot be overstated. To address this, we have included a training platform within the Chamber to strengthen our cultural awareness initiatives. This new program offers our members access to modules on our website focusing on global business practices.

Furthermore, we have set up a Center of Excellence specifically dedicated to researching areas like food security and cultural awareness. These research endeavors are essential for promoting knowledge between the two regions.

By combining the resources of the Center of Excellence, our training resources, and the forthcoming local office in Dubai, we’re providing cultural awareness not only in the region but also in Australia. This approach ensures that our members are well equipped and knowledgeable boosting their effectiveness and involvement, in markets.

– What is the objective of your on-ground presence at conferences and events?

Participating in conferences and on ground events is very important for increasing awareness in industries like construction where knowledge of opportunities in the Arab world may not be widespread. When we see projects such as NEOM or notice the construction boom happening in the region it becomes important for organizations like the Chamber of Commerce to highlight these prospects. By taking part in large scale expos such as the Sydney Build Expo we position ourselves at the forefront of these advancements.

Our presence at these events enables interaction giving entrepreneurs a chance to visit our booth engage in discussions and learn more about the region in an approachable and personalized manner. This plays a role in simplifying the process and making opportunities concrete.

– With such a diverse membership base, how does AACCI tailor its services to meet the needs of both large corporations and small startups?

When it comes to discussing business it’s important to grasp how influence and vision come into play. Businesses looking to expand are often motivated by a desire to achieve something whether they are big companies or small enterprises. Small businesses typically aim to raise their brands profile while larger corporations seek recognition and market dominance.

Standing out in this area can be tough mainly because the key driving force is the passion to showcase the brand and products on a platform. This determination serves as a motivator for entrepreneurs.

At the Chamber we make a point of recognizing the needs of both big and small players by understanding each members individual situation. We ensure that every member is well informed about the opportunities and risks that come with expanding. For small businesses, this means being aware of the financial demands, while large businesses are advised on the necessity of both financial and emotional resilience.

– How does AACCI plan to expand or evolve its services in the coming years to further support its members?

The importance of having resources on the ground cannot be emphasized enough. Having local staff is key to establishing connections with the communities we serve. Without a presence in the area staying updated on events and activities becomes quite challenging.

This is why, as I’ve mentioned before, we have established an office in Dubai, staffed with personnel dedicated to supporting our members. This local office will help us effectively bridge the gap between Australia and the Arab world. And our members will benefit from insights and assistance from someone who truly knows the landscape.

In Australia we have equipped offices throughout the country staffed by individuals who play a significant role in our operations. This strong domestic network complements our efforts ensuring that we provide support to our members both locally and globally. This strategic approach is crucial, for nurturing business relationships and fostering continental understanding.

 

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