Germany’s ageing economy worries top advisors

Germany’s ageing population and rapidly outdating economic structures are putting its future growth at risk, the country’s top economic advisors warned on Wednesday, stressing that it must also draw in more private capital from other European countries.

Plagued by soaring energy costs and high interest rates for German industry following Russia’s war in Ukraine, the German economy is expected to shrink this year.

But the economy could be affected even beyond that, the government’s economic advisory body, the Council of Economic Experts, warned in its annual report published on Wednesday.

“Mid-term obstacles to growth are much more important than the current economic weakness,” Veronika Grimm, one of the five council members, said on Wednesday.

Dragging growth is a general lack of economic dynamism and investment malaise, according to the report, which points to an ageing population, low productivity growth, outdated industrial capital stock and the absence of young, innovative companies as issues that need to be addressed.

While German AI startup Aleph Alpha recently made headlines by raising $500 million in venture capital, such successful innovation and investment cases are the exception, the experts said.

EU capital markets union needed

Asked by Euractiv, Ulrike Malmendier, another member of the Council, acknowledged that EU member states have started to inject more money into the economy but argued that encouraging more large-scale private investment has a crucial role to play, as it accounts for 90% of investment.

“We were wondering why (…) those few successful, new companies that actually create growth leave Germany – [the answer is] because there is not enough funding,” Malmendier said.

The Council thus pointed to the need to unlock the potential of cross-European investment, as European investors continue to invest predominantly in their own countries. ECB indices show that the integration of European capital markets has not returned to pre-financial crisis levels.

Germany would need to “finally promote the urgently needed harmonisation of capital markets regulation in Europe”, Malmendier urged.

However, capital funding generally remains a relatively marginal issue within the ruling coalition.

It has previously shown some awareness of the issue as it is looking to pass a bundle of measures to encourage domestic capital investment, dubbed the Future Funding Act.

However, the legislation is mainly a pet project of the junior coalition member, the pro-business FDP (Renew), with Chancellor Olaf Scholz (SPD/S&D) preferring to highlight his government’s own investments at the presentation of the report on Wednesday.

Beyond the matter of capital access, the council pointed to the need to accelerate planning processes and emphasised the opportunities from migration and productivity-increasing technologies such as AI to tackle the challenges of a loss of productivity and an ageing population.

(Nick Alipour | Euractiv.de)