ECB Executive Board member Isabel Schnabel says Germany's export-driven growth model is no longer viable in a fragmented global economy. She argues that weak domestic demand, not a collapse in competitiveness, explains the country's stagnation. She welcomed Germany's fiscal expansion as a step in the right direction.
Isabel Schnabel, an ECB Executive Board member, warned that Germany's traditional export-driven growth model is no longer viable in a fragmented global economy. She spoke on Friday at the Bank of Lithuania's Economics Conference in Vilnius.
Domestic demand, not exports, is the weak point
Schnabel noted that Germany's real GDP per capita fell by 0.5% between 2019 and 2024. Protectionism, elevated energy costs and competition from China have created substantial challenges, she said. However, she argued that German export performance has broadly followed global trends rather than suffering an exceptional collapse.
According to Schnabel: "Especially in a more fragmented world, its export-driven business model is no longer viable." The fundamental problem, in her view, is persistent weakness in domestic demand.
Decades of restrained spending
Schnabel pointed to subdued household spending and investment as the deeper structural weakness. Real private consumption has grown by less than 1% annually on average since 1999, partly reflecting early-2000s reforms that deliberately restrained real wage growth.
Those policies increased corporate profits and savings and contributed to persistent current account surpluses. Meanwhile, insufficient domestic investment meant much of the accumulated capital went abroad. Despite substantial trade surpluses, the economy grew by only 1.4% annually on average between 1999 and 2019.
Fiscal expansion as a way forward
Looking ahead, Schnabel welcomed Germany's major fiscal expansion, describing it as the largest since the Second World War. She argued that well-targeted public investment in infrastructure, defence and digital transformation, together with structural reforms, could strengthen domestic demand and raise the economy's productive capacity.
Such measures could also encourage German companies to invest more at home rather than expand production abroad. The challenge, Schnabel said, is to shift toward a more domestically supported growth model without sacrificing Germany's industrial strengths.
Source: ActionForex
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