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Press Release from 2021-10-05 / Group

Slowdown in globalisation pushes German enterprises to revise their growth strategies

  • 28% of jobs and 31% of value added depend on exports
  • New study by Prognos on behalf of KfW Research analysed possible scenarios of the future
  • Economic policy needs to set a reliable framework

Over the past decades, Germany’s economy has greatly benefited from globalisation. International business is correspondingly important both for companies that export directly and for their suppliers, many of which are small and medium-sized enterprises. In 2019, approx. 28% of all jobs (some 12.6 million workers) and 31% of gross value added (close to EUR 1 trillion) in Germany depended directly or indirectly on exports. This is one of the findings of a study conducted by Prognos on behalf of KfW Research about the future of globalisation and the growth prospects of German enterprises.

How important globalisation is for Germany’s prosperity is illustrated by its influence on economic growth since the country’s unification. Between 1990 and 2018, Germany’s gross domestic product per inhabitant grew by an average rate of around 1.4% annually. Around 0.3 percentage points of this can be attributed to Germany’s closer economic, social and political integration into the global economy. International trade in goods and services is a major aspect of globalisation, especially in the manufacturing sector. The automotive and mechanical engineering, pharmaceuticals, chemical and electronics industries earn far more than half their total turnover outside Germany.

It is unclear to what extent Germany’s export prowess – one of the success factors of its economic model in the past years – will continue to be a driver of growth in the future. The future of globalisation and international trade appears to hang in the balance, not least because the coronavirus crisis may bring about lasting changes in trade policy and trade relations of businesses. The study carried out by Prognos on behalf of KfW Research analysed the effects of several possible globalisation scenarios on growth, value added and employment in Germany in the next ten years. One scenario, in which globalisation continues at the same slow rate seen since 2010, has real GDP grow by 1.1% on average per year between 2023 and 2030. This appears to be more likely than widespread de-globalisation or a renewed globalisation surge, as was observable in the 1990s and 2000s. After all, the protectionist trends of the past years and the perceived weakness of the World Trade Organisation are hampering the further integration of the global economy, and international value chains first must come to terms with the coronavirus crisis, although the advantages of the international division of tasks are still there.

“Much indicates that globalisation will continue to move forward at a slow pace after the coronavirus crisis has been overcome. Businesses are well advised to consider such a possible trend and think about alternative growth strategies”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. The study conducted by Prognos for KfW Research indicates three possible ways to adapt export strategies and open up new sales potentials:

  • Focusing more strongly on domestic demand in Germany. Here, growth opportunities arise primarily from the mega-trends of demographic change, digitalisation and action on climate change and the environment.
  • Developing new, innovative export products or services. Advancing digitalisation and the growing importance of climate and environmental action are likely to provide important international impetus as well. Germany is already the second largest exporter of climate and environmental technologies.
  • Tapping into new, promising export markets. Several emerging and developing economies outside existing sales markets in Europe, North America and East Asia offer opportunities.

Besides the private sector, governments must also make their contribution to shaping the globalisation of the future. “It is important to ensure reliable frameworks for external trade and to return to a more rules-based trade system. Entering into new trade agreements with booming emerging and developing economies, further liberalising trade in services and creating a digital EU internal market can contribute significantly to strengthening international trade”, said Köhler-Geib.

The study can be downloaded from
www.kfw.de/About-KfW/Newsroom/Latest-News/News-Details_672961

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Christine Volk

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