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Does Germany’s economy need more than a cup of coffee? – BBC.com

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By Jonathan Josephs & Jessica ParkerBusiness Reporter & Berlin Correspondent, BBC News

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Exports have traditionally been a strength of Germany’s economy but have been falling

“I’m afraid that we will actually miss out on the future, because we’re taking too little risks.”

Verena Pausder is a successful German entrepreneur who is clear about where she thinks the economy is going wrong.

This week, it was confirmed that Europe’s biggest economy shrank by 0.3% last year.

Whilst the country avoided recession – thanks to a statistical quirk – most economists think Germany will be in that position when the numbers for the first part of this year are published.

Germany’s growth is being held back by the twin shocks of the energy crisis, caused by the war in Ukraine, and higher interest rates.

There are also long-term structural issues such as ageing infrastructure, a labour shortage and the cost of tackling climate change.

At January’s World Economic Forum in Davos, Germany’s finance minister Christian Lindner denied these problems made Germany the “sick man” of Europe.

“After very successful periods since 2012 and these years of crisis, Germany is a tired man after a short night, and the low growth expectations are probably a wake up call,” he said.

“And now, we have a good cup of coffee, which means structural reforms, and then we will be continuing to succeed economically.”

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Finance Minister Christian Lindner, Economy Minister Robert Habeck and Chancellor Olaf Scholz are struggling to get Germany’s economy growing

For Mrs Pausder, who is chair of the German Start-up Association and founder of the kids app developer Fox & Sheep a “change in mindset” is what’s needed.

“I think we’re really good at kind of listing all the negative stuff and what we’re not good at. And I think what we’re forgetting is what we actually get done.”

She points out that despite the downturn there were still 2,489 start-ups founded last year and the country is making good progress in the switch to green energy.

Patrycia Lukas / Verena Pausder
German Start-Up Association chair Verena Pausder says the economy would benefit from a change of mindset

Younger generations are more willing to take risks, she says. But as things stand, Germany’s pension funds – which are worth more than $700bn – “are not allowed to invest into asset classes like venture capital and private equity”.

“We’re used to these big brands of the past, and we want to do everything to have them in the future. And sometimes we put too much energy into conserving what we have [rather] then to investing in the new things.”

Those big brands have traditionally sold huge amounts of cars, machinery and pharmaceuticals abroad, driving economic growth and influencing government policy.

However, foreign demand “has been declining for many, many months”, says Dr Klaus Deutsch, the chief economist at the German Federation of Industries (BDI).

Exports to non-EU countries were down 9.2% in December compared to the same time a year earlier.

Dr Deutsch explains that Germany’s recovery depends on the world’s two biggest economies, as well as domestic concerns.

For exports, he says, “The question of greatest importance is whether the US economy can avoid a recession” as well as if China can overcome the many challenges its economy faces.

Around 7.5m people, or 16% of the workforce, are employed in manufacturing, and nearly half of what they make is sold abroad.

That gloom in the manufacturing sector is, he says, driving the pessimism amongst German consumers which “is a bit worse than in most parts of the world”.

AFP
Germany needs to invest billions as it continues to switch from fossil fuels to greener energy sources

December’s figures showed an uptick inflation to 3.7%, which is still lower than many other major European economies. The rate at which prices are rising means people are holding back their spending on everything from cars to furniture.

It’s a sentiment that’s not hard to find amid the hustle and bustle of office workers and tourists on Berlin’s shopping hub of Friedrichstrasse.

On a cold, but sunny winter’s day one man tells us that he notices higher prices everywhere from his rent to his energy bills, as well as when he goes to restaurants. “Berlin used to be a cheap city. That’s not the case anymore.”

A woman tells us that for her family of five the weekly supermarket shop used to come in well under 100 euros. “Now I spend well over that,” she says.

A lady who says she has a “good job and a good wage” is doing “ok”. However, she adds: “I think in general things are going to get worse.”

AFP
People on Berlin’s Friedrichstrasse shopping hub were pessimistic about the economic outlook

Despite the shrinking economy, the number of people in work has increased steadily over the last two years. That points to lower productivity.

According to Moritz Schularick, President of the Kiel Institute for the World Economy, “Unhappiness isn’t mainly driven by the current economic situation. It is driven by a deeper cultural unease as well as uncertainty and fear. There’s a lot of angst.”

That sense of negativity about the outlook is reflected in the latest GfK survey of consumer sentiment, which says crises, war and inflation are all leading Germans to save rather than spend.

Bloomberg
Carmakers such as Volkswagen have traditionally driven the exports which have fuelled Germany’s economy

Mr Schularick thinks the move away from cheap Russian energy is less of a challenge that the long term issues and December’s court ruling which has forced Olaf Scholz’s government into budget cuts.

“One of the lessons we’ve learned from the UK and the 1930s, is that in these situations you don’t want to antagonise parts of the population even further by making painful budget cuts because that feeds the extremes and populists.”

Economic discontent has helped the political rise of the far-right AfD who are seen as against immigration. Amid a labour shortage that is something which is worrying business leaders such as the CEO of software giant SAP, Christian Klein.

“We are completely against any kind of extremism now, because we need to have those talents coming to us to innovate, to boost the economy. And that’s why it was time indeed, to speak up not only for myself, but for the German economy.”

The AfD’s deputy leader Peter Boehringer denies his party is bad for business and says companies biggest problem is high energy costs which have been caused by bad government policy.

Bloomberg
SAP’s chief executive Christian Klein is amongst business leaders concerned the rise of political extremism will harm Germany’s economy

If Germany’s economy is to return to growth innovation will be crucial, says SAP’s Christian Klein. Germany’s most valuable company saw the amount of money it took in grow 6% last year to $33.7bn.

“Many companies actually turn to SAP, especially in macroeconomic challenging times.”

He explains his company is helping its customers tackle challenges ranging from supply chains to climate change and productivity challenges caused by high inflation.

“In Germany, I don’t see a decline in IT budgets. What I actually see is that business leaders want to invest because they see tech as an opportunity to overcome those challenges.”

Additional reporting by Damien McGuinness in Berlin

You can watch more about Germany’s struggle for economic growth on Talking Business with Aaron Heslehurst on BBC News. Viewers in the UK can watch on BBC iPlayer from 23:30 GMT on Saturday. In other countries it will be on at 23:30 GMT on Saturday, 05:30 GMT and 16:30 GMT on Sunday and 08:30 GMT on Monday.



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Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.

Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.

Business, building and support services saw the largest gain in employment.

Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.

Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.

Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.

Friday’s report also shed some light on the financial health of households.

According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.

That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.

People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.

That compares with just under a quarter of those living in an owned home by a household member.

Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.

That compares with about three in 10 more established immigrants and one in four of people born in Canada.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.

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Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

The Canadian Press. All rights reserved.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

The Canadian Press. All rights reserved.

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