Germany leans on ‘classical industries’ to survive modern crisis

by Takashi Kitazume

Germany’s economy has bottomed out and is set for modest growth in 2010, although unemployment could rise without a quick recovery in the global economy, journalists from the country told a recent symposium in Tokyo.

Europe’s largest economy has suffered severely from the global financial crisis because of its heavy dependence on exports, but the nation will likely continue to be driven by its “classical industries” — like automobiles, chemicals and mechanical engineering — in the coming years, they said.

Even though Germany has emerged from the worst recession in decades, its recovery is expected to be weak — with 2010 growth forecast by the OECD at 1.5 percent, compared with 1.8 percent for Japan and 2.5 percent for the United States, Christoph Kapalschinski, editor of corporate news at the Handelsblatt business daily, said at a symposium Nov. 30 co-hosted by Robert Bosch stifftung and Keizai Koho Center.

That is because of the heavy export-dependency inherent in its main industries, such as automobiles and machinery, he said. German exports began picking up in September but were still 19.4 percent down from a year ago at that point, he noted.

Unemployment remained relatively stable despite the crisis, as companies retained surplus workers by reducing working hours under a government-subsidized program. While the number of jobless stood at 3.3 million in September, roughly 3.4 million others were covered by this program, which the government says has saved 1.1 million jobs, Kapalschinski said.

Still, German workers’ income declined 5.2 percent in the first half of 2009, and any substantial improvement in employment will hinge on a quick worldwide recovery and financial stability, he said.

The global crisis and the severe shock to the German economy have highlighted the country’s heavy dependence on exports, which in value-added terms has nearly doubled since the beginning of the 1990s, said Klaus-Rainer Jackisch, an economics and stock markets editor at Frankfurt-based broadcaster Hessischer Rundfunk.

Jackisch said Germany’s dependence on the classical industries will remain strong. Germany will continue to “see opportunities in exports,” making the traditional industries its primary engine for growth, he said.

At the same time, Germany is looking at growth potential in new business sectors, such as environmental technologies, and has already taken leading positions in some of them, including energy-efficient and low-carbon building technologies, Jackisch said.

“Green” industries accounted for 5 percent of Germany’s industrial sales in 2007 and employed roughly 1 million workers in 2008, a number that is expected to double by 2020, he said.

The new center-right coalition of Chancellor Angela Merkel faces a host of macroeconomic challenges, including record high levels of new debt issued to finance the surge in government spending needed to support the fragile recovery. However, not enough attention is being paid to the paradigm shift in German politics accompanying these challenges, said Ute Welty, a reporter at public broadcaster Sudwestrundfunk (SWR).

Merkel was returned for a second four-year term in the federal election in September, which saw the creation of a new conservative coalition combining her Christian Democratic Union with the probusiness Free Democratic Party.

Welty said the outcome of the September election signaled substantial changes in voter behavior and underlined the decline in support for the two major parties that formed the “grand coalition” during her first term.

While the center-left Social Democratic Party saw its share of votes fall sharply from 34 percent in the 2005 election to 23 percent, the CDU bloc also suffered a slight setback from 35 percent in 2005 to 33.8 percent. That compares with the 43.8 percent won by CDU in the 1990 election right after the country’s reunification.

Membership the Social Democrats has fallen about 50 percent from roughly 1 million in the 1980s, and the CDU has lost nearly a third of its membership over the past 15 years, Welty said. Affiliation with any political party has declined to “almost meaningless levels” among those in their 30s and younger, she added.

Such changes mean German politics is now marked by the coexistence of several parties rather than the dominance of the two majors — CDU and the Social Democrats. It also implies that previously unthinkable alliances — some of which are already emerging on the state level — may be possible in the federal government in the future, she said.