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German companies, targeting foreign companies

2024-10-13 22:45:00, Kosova & Bota CNA

The situation of the German economy is not good at all at the moment and the future does not look good either. German Economy Minister Robert Habeck told reporters in Berlin on Wednesday (09.10.) that the country's gross domestic product (GDP) is expected to shrink in 2024, which means that Europe's largest economy will remain stuck in recession for the second consecutive year.

Unveiling the government's routine autumn growth forecast, Habeck announced an expected contraction of 0.2%, revising a more optimistic spring outlook of plus 0.3% growth. He noted, however, that Germany has not seen strong growth since 2018 as the country's structural problems have been compounded by broader global challenges. "In the midst of the crisis, Germany and Europe are squeezed between China and the United States and must learn to assert themselves," he said.

German companies, targeting foreign companies

Information coming from German businesses is likely to add to the difficulties for Habeck, as they do not bring confidence that the economy will recover soon. In September, the business climate index compiled by the Munich-based ifo Institute marked its fourth consecutive decline. Ifo president Clemens Fuest said the economy is "under increasing pressure". The majority of company managers surveyed by ifo said they are dissatisfied with their current situation and pessimistic about their business prospects. The bleak economic situation has led DZ Bank economist Christoph Swonke to describe Germany as the "problem child of the eurozone".

Corporate hawks are coming around

In times of declining sales and revenue, businesses often look to stronger partners to help them overcome their difficulties. Germany's railway, Deutsche Bahn, is the last case. The company has agreed to sell its profitable logistics subsidiary, Schenker, to its Danish rival DSV for about 14 billion euros ($15.3 billion). The new flow could be a much-needed financial boost for the struggling state-owned company, which is known for frequent delays.

German companies, targeting foreign companies

There is much talk of another overseas acquisition of Commerzbank. Germany's second largest private lender was bailed out by the German government after the 2008/2009 financial crisis, the state still holds a 12% stake in the bank. Italian bank UniCredit is aiming for a full takeover of Commerzbank after surreptitiously increasing its effective stake to 21% in September in what industry officials believe could be a so-called hostile takeover.

European Central Bank (ECB) President Christine Lagarde told the European Parliament on Monday (October 7th) that banking mergers within Europe were "desirable" so that European banks are able to compete "level, depth and breadth". with other banks worldwide. Meanwhile, more and more German companies are leaving the country altogether, or at least investing more in their factories abroad than in their home bases in Germany. Chemical giant BASF, for example, is building a €10 billion plant in China. And midstream energy service provider Techem was sold by its Swiss owners to US asset manager TPG.

German companies, targeting foreign companies

"Companies do not have a passport"

Foreign acquisitions of German companies, even those partly owned by taxpayers, are seen by economists as a natural process. ING Bank chief economist Carsten Brzeski says that "economic stagnation and structural changes naturally have consequences" for companies. "During such moments, acquisitions take place, whether at home or abroad," Brzeski told DW. Even Stefan Kooths, director at the Kiel Institute for the World Economy (IfW), shares this view, adding that "companies don't have a passport." A country's prosperity will not depend on the nationality of its corporate owners, he told DW, but on the quality of its business environment. Kooths says the recent slowdown in foreign direct investment (FDI) in Germany is " another sign of the country's weaknesses" as a business location. Countries that are more conducive to doing business attract foreign capital, he said, "while weak countries are shunned by investors."

Cutting red tape - the eternal German promise

Since the 1980s, successive German governments have promised to reduce the country's overburdened bureaucracy and boost investment in Germany. After all those years, Kooths concludes, some "attempts have been made" by those governments, but mostly on paper without "significant political action". Kooths lays the blame not only on the German government, but also on Brussels, where EU regulators are creating more and more red tape. "Especially with the EU's excessive reporting requirements - from the EU taxonomy to supply chain regulations - market players increasingly find themselves in the way."

ING's Carsten Brzeski agrees, suggesting the digitization of government bureaucracy as the first step along the way. "This would speed up red tape reduction and also help address the shortage of skilled workers in many authorities."

Green economic growth policies versus government stimulus

As the EU seeks to implement the so-called Green Deal - with which it wants to become the world's "first climate-neutral bloc" by 2050 - Brzeski and Kooths doubt that prioritizing ecology will help the economy. "Overall, decarbonisation cannot be a growth story," Kooths said, because "decarbonisation policy suffers from too many interventions".

German companies, targeting foreign companies

And Brzeski adds that "green technologies have so far unlocked very little investment." Instead, he is asking the government to address the declining competitiveness of German companies, a process that has been going on for a decade, he said.

Kooths also believes that improving the competitiveness of German industry is key to returning to a growth path, but warned that growth cannot be "stimulated; it must be enabled".

The expert is critical of the government's stimulus programs, saying that the current German growth initiative is a "step in the right direction" but will not bring about a turnaround. For that to happen will require "a fundamental shift from interventionist industrial policy to a market-based policy that strengthens the business environment," he said.

Kooths also categorically ruled out that the German government should intervene to prevent a possible sale of German companies. Instead, he pointed to the laws of free markets, where companies are forced to become takeover targets "when their structures can no longer withstand the competition"./ DW