LocationsFor two years, the German economy has essentially been marking time. It has been swinging from a quarter of minimal growth to one of slight contraction, then back to modest expansion, and so on. This pattern, which I refer to as a "corrugated iron economy," resembles waves in its regular peaks and troughs, but fundamentally, the German economy is lying flat.
Until recently, the job market had seemed to dodge the bullet of economic stagnation. It was only a matter of time before it also felt the impact. As I predicted in the first "To the point" column of the year: "Companies will increasingly 'un-hoard' workers, and the public sector will also have to hold back on adding jobs in the face of constitutional fiscal constraints. Following a recent ruling of the German Federal Constitutional Court, the government has rather embarked on an austere budgetary course. The skid marks of stagnation are slowly reaching the labour market." And that's precisely what has happened.
The job market begins to weaken
In July, the number of unemployed individuals in Germany reached 1.65 million, marking an increase of over 300,000 compared to the previous year. Simultaneously, the number of job vacancies has decreased by a total of twenty percent over the past two years.
Increasingly, even well-established companies announce largescale job cuts, a measure that for quite a long time seemed to be a relic of the past. At the same time, corporate bankruptcies have surged to their highest monthly level in a decade.
When firms lay off part of their workforce, they often resort to seemingly convenient solutions like early retirement or part-time work schemes for older employees. This approach appears to offer mutual benefits, as employees generally agree to these measures willingly. And companies can thus strategically shed older, more costly staff while avoiding the pitfalls of wrongful dismissal lawsuits. However, the overall economy suffers. Employees sometimes opt for these schemes as early as 55, effectively removing themselves from the job market for good, thereby depriving other companies, which are still looking for workers, of potentially valuable employment.
Meanwhile, a skilled workers shortage persists
While an increasing number of companies require fewer workers due to economic circumstances, others are still in dire need of staff. The labour shortage index, while having decreased slightly, remains on a relatively high level. The occurrence of jobs disappearing in certain sectors and companies while appearing in others is a natural aspect of the ebb and flow within a market economy undergoing structural change. What is abnormal, however, is the rapid rate at which Germany's working-age population is shrinking due to an aging society – a significant obstacle for the country's economic development.
No subsidies for sidelining skilled workers
In this context, it is indefensible to push urgently needed skilled workers into early retirement. Moreover, it is particularly egregious for the state to effectively subsidize this sidelining by forgoing taxes and social security contributions on some payments under early retirement schemes. Such policies are profoundly outdated and artificially compress the already shrinking labour force, thereby also limiting Germany's growth potential. It is high time for the government to remove such harmful incentives.
This publication is addressed exclusively at recipients in the EU, Switzerland, Liechtenstein and the United Kingdom. This report is not being distributed by LBBW to any person in the United States and LBBW does not intend to solicit any person in the United States. LBBW is under the supervision of the European Central Bank (ECB), Sonnemannstraße 22, 60314 Frankfurt/Main (Ger many) and the German Federal Financial Supervisory Authority (BaFin), Graurheindorfer Str. 108, 53117 Bonn (Ger many) / Marie-Curie-Str. 24-28, 60439 Frankfurt/Main (Germany). This publication is based on generally available sources which we are not able to verify but which we believe to be reliable. Nevertheless, we assume no liability for the accuracy and completeness of this publication. It conveys our non-binding opinion of the market and the products at the time of the editorial deadline, irrespective of any own holdings in these products. This publication does not replace individual advice. It serves only for informational purposes and should not be seen as an offer or request for a purchase or sale. For additional, more timely in-formation on concrete investment options and for individual investment advice, please contact your investment advisor. We retain the right to change the opinions expressed herein at any time and without prior notice. Moreover, we retain the right not to update this information or to stop such updates entirely without prior notice. Past performance, simulations and forecasts shown or described in this publication do not constitute a reliable indicator of future performance. The acceptance of provided research services by a securities services company can qualify as a benefit in supervisory law terms. In these cases LBBW assumes that the benefit is intended to improve the quality of the relevant service for the customer of the benefit recipient. Additional Disclaimer for recipients in the United Kingdom: Authorised and regulated by the European Central Bank (ECB), Sonnemannstraße 22, 60314 Frankfurt/Main (Germany) and the German Federal Financial Supervisory Authority (BaFin), Graurheindorfer Str. 108, 53117 Bonn (Germany) / Marie-Curie-Str. 24-28, 60439 Frankfurt/Main (Germany). Deemed authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.
