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Is the German economy the ‘Sick Man of Europe’ once again?

Published 9 January 2024 in Competitiveness • 4 min read

After nearly two decades, claims that Germany is the “sick man of Europe” are making a comeback. In the first six months of 2023, around half of Germany’s publicly-listed firms destroyed value, a greater share than in other EU countries, heightening the need for reform.

In 1998, economist Holger Schmieding first labeled Germany the “Sick Man of Europe” when its economic growth fell below that of other members of the nascent Eurozone. The cost of reunifying West and East Germany created unprecedented burdens on the economy, it was said. In June 1999, The Economist coined the same phrase. Within a decade, however, and despite the Global Financial Crisis, Germany transformed from the “Sick Man of Europe” to Europe’s “Economic Superstar.” This was attributed to various factors such as the “Agenda 2010” reforms, the flexibility of labor market institutions, and early mover exports to emerging markets like China and India.

With the challenges of the COVID-19 pandemic, the Ukraine conflict, subsequent energy price shocks, rising interest rates, and China’s economic slowdown, Germany’s ‘golden decade‘ appears to be over. “Europe’s biggest economy has gone from a growth leader to a laggard,” wrote The Economist in an August 2023 article. The IMF and OECD expect Germany to be the worst growth performer among advanced economies this year.

But is Germany’s poor macroeconomic performance translating into below-par results by Germany’s largest firms? Using a bottom-up firm-based approach, we move beyond standard macroeconomic statistics to assess the recent performance of Germany’s capitalism. To evaluate recent quarterly economic profits in comparison to previous years on an apples-for-apples basis, we adjusted our economic profit measure and did not add back voluntary expenses, such as research and development. This adjustment was necessary given the delays in reporting these expenses. That said, we summarise our main findings as follows:

First, the economic profitability of Germany’s publicly-listed firms in the first half of 2023 is not worse across the board when compared to the preceding two years. Q1 2023 profitability is below that of Q1 2022 but above that of Q1 2021. Q2 2023 is more than double the nadir of Q2 2022 but still below levels seen in Q2 2021. In relative terms, German publicly-listed firms earned $2.8 of economic profits per $100 of revenue less in Q1 2023, which could depress national capital formation.

Second, warning signals are getting harder to ignore as a remarkable 51% of publicly listed German firms actually ‘destroyed’ value in the first half of 2023. Half of Germany’s largest firms had negative economic profits, a stark contrast to the 2021-2022 period, when ‘only’ 36% of German publicly listed firms destroyed value. The percentage of strongly performing firms creating more than $100m in economic profits declined from 15% in H1 2022 to 9% in H1 2023. And the percentage of firms losing more than $100m has risen from 6% to 9% over the same timeframe.

The IMF and OECD expect Germany to be the worst growth performer among advanced economies this year

Listed companies, such as BASF, the world’s largest chemical producer, are an important engine of the German economy. In H1 2022, BASF recorded an economic profit of $2.1bn (8% of the total net economic profit in Germany in H1 2022). The gas-price shock has hit energy-intensive industries particularly hard – by H1 2023, BASF reported negative economic profits. Similar challenges are being faced by industrial behemoths like Siemens, slipping into negative economic profits this year.

Third, Germany is not alone in its recent drop in median economic profits. Other EU members such as Italy and France have witnessed median economic profit fall in the first quarter of 2023, though not by the magnitude seen in Germany. In Q1 2022, the median German firm generated $0.3m in economic profit. Just one year later, the median German firm is now destroying value, shifting from a midfield position within the EU to the lower end of the distribution. Still, it is worth noting that one of Germany’s “hidden” strengths lies in its thousands of “Mittelstand” companies, like the technology and services company Robert Bosch, which outperform many DAX companies in terms of sales. The many mid-sized companies are known to flank the industrial behemoths and likely paint a more positive picture of the German economy than what we have found so far. Still, the overall impression is not one of vigorous German capitalism.

Whether Germany can effectively finance the many challenges it is facing, including the net-zero emission transition and an aging workforce, with such low levels of economic profitability remains to be seen. German firms generate less internal funds for investments than peers. Pressures for business model transformation are mounting.


Camilla Erencin

Camilla Erencin

Ph.D. candidate in Economics at the University of St.Gallen

Camilla Erencin is a Ph.D. candidate in Economics at the University of St.Gallen and holds a M.Sc. in economics from the University of Warwick. Her research focuses on corporate performance and competitive strategy under uncertainty.

Simon Evenett

Simon J. Evenett

Professor of International Trade and Economic Development at the University of St. Gallen

Simon J. Evenett is currently a Professor of Economics at the University of St. Gallen and on 1 August 2024 will join the Faculty at IMD. He is also  Co-Chair of the WEF’s Global Council on Trade & Investment and the Founder of the St. Gallen Endowment for Prosperity Through Trade, home of two of the leading independent monitors of how governments shape international business.

Felix Reitz

Felix Reitz

PhD candidate in international affairs and political economy at the University of St Gallen

Felix Reitz is a PhD candidate in international affairs and political economy at the University of St Gallen, Switzerland, and holds a Master’s in international political economy from the London School of Economics and Political Science. Reitz focuses on fiscal policy, international taxation, and corporate strategy under uncertainty. 


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