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GRAMJust a few days ago, statisticians presented data representing a kind of balance of 30 years of German unity, with epochal changes on both sides of the old border. And new figures have to be announced, which in turn mark an era but only reflect the evolution of the first half of 2020. From January to June there was an economic upheaval, and unfortunately not in a positive way.
As expected, the pandemic and the almost terrified announcement of the enforced paralysis of public life (blockade) hit the German economy hard. What was not clear, however, was how different the federal states would suffer from artificial coma. The statistical offices of the federal states have already given the answer.
In no other region of Germany did the economy collapse as sharply in the first two quarters as in the Saarland. The small country in the southwest of the republic is thus consolidating its reputation as a region in crisis. At less than 9.5 percent compared to the previous year, the Saarland economy saw a greater decline than any other German state.
The decline is only on a similar dimension in Bremen, where gross domestic product (GDP), the sum of all goods and services, fell by 8.7 percent.
Source: WORLD infographic
That doesn’t bode well for Saarland’s nearly one million residents. At the same time, the collapse of the heavily industrialized economy points to a deeper problem in the German economy, which cannot be explained by Corona alone and which is particularly reflected in the industrial centers.
The Saarland had already entered an economic recession in 2019: in that year, production fell 0.6 percent. So now a new blow, even more violent. The 9.5 percent drop in the first half of the year means that Saarland’s economic power has fallen back to its early 2009 level. Mathematically, an entire decade of boom seems to be erased. Experts also see a political failure behind this.
Dependence on the automotive industry
“The current crisis goes far beyond the Corona effect,” says Bundestag FDP member Oliver Luksic, spokesman for transport and digital infrastructure in his parliamentary group and also chairman of the Saar Liberals.
The “fatal economic policy” of the grand coalition (Groko) hit the Saarland hard, above all. “Since Groko is in charge of the combustion engine, the Saarland central vehicle manufacturing plant is under enormous pressure. If there is no change in policy, more than 200 companies in the country have little prospects, ”Luksic fears.
In fact, the Saarland is one of the regions in Germany that, as a result of many suppliers, is most dependent on the economy of the vehicle and especially on the technology of propulsion by internal combustion engines.
Other federal states with major auto locations also felt the effects of the structural crisis. In Baden-Württemberg, economic output fell 7.7 percent in the first half of the year and 7.3 percent in Lower Saxony.
Even in East Germany, where the recession was not so severe for various reasons, the hardest hit were the countries that are home to the major car suppliers, namely Saxony and Thuringia. However, economic management there fell slightly below average at 6.3 and 6.5 percent.
The coastal state of Schleswig-Holstein was the best to emerge from the crisis, despite falling tourism figures, whose GDP minus 3.8 percent was almost a “normal” recession and not a recession of the century as in the Saar.
The robustness of development in Berlin is surprising. The economy of the metropolis of 3.6 million inhabitants contracted by 5.1 percent, significantly less than the German average. In view of the fact that tourism and the trade fair business play an important role in the capital’s economy, observers expected a more severe drop.
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In the end, the decisive factor was obviously the fact that administration, education and teaching, as well as health, are among the most important industrial branches in Berlin. These areas were largely unaffected by the virus crisis. Of the more than two million people recently employed in the capital, almost 90 percent are employed in the service sector and more than 800,000 work in the public sector, in education and health.
Berlin benefits from the housing boom
The city-state of Hamburg also has an equally high proportion of services, although it suffered a significantly larger GDP drop of 6.6 percent.
“Without a doubt, many simple jobs have disappeared in Berlin, for example in the hotel industry. But the highest paid have been kept in public service, ”says Berlin-based economist and expert Daniel Stelter. Such an economic model may be resistant to a crisis like Corona, as is the case with the future viability of the location, but it’s a different story.
Among other things, the capital benefited from the continued investment boom in the housing sector. The liquidity injected into the markets by the European Central Bank, together with the investment crisis, has contributed to the fact that real estate in Berlin has become significantly more expensive despite Corona.
On the other hand, German industry seems to be under continuous pressure. Unionists and economists close to them are already calling for the introduction of the four-day week to better distribute the dwindling work among the workforce.
Source: WORLD infographic
Employers argue against this only making German industrial products more expensive and damaging Germany’s competitiveness. Stringent German environmental regulations raise additional concerns. They pose challenges for industrial regions like the Saarland, where another major employer, the steel industry, already needs it.
“The existence of the steel industry is threatened by increasingly stringent regulations,” Luksic fears. Groko sticks to its policy of constant adjustment. If it continues like this, the future of the industrial location looks dark: “The export-oriented value chains of the Saarland are particularly affected.”
Instead of excessive requirements, there is a need for a market economy framework such as technological openness and expansion of emissions trading. In the Southwest, the crisis is far from over. It’s about preventing recession from turning into depression.
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