2016 has just ended and many events have created an atmosphere of uncertainty: a weak economy, an unexpected Brexit, a chaotic situation in the Middle East, the rise of anti-globalisation sentiments, etc. Not surprisingly, the Chinese foreign minister described the year 2016 with the words “change” and “chaos”.
Experts predict unstable economic circumstances for the year 2017. The consequences of the Brexit remain unclear. At the same time, the new American president signed 12 executive orders within his first days in office which, among other things, initiated the withdrawal of the United States from the TTP (Transpacific Partnership) and blocked the negotiation of future trade agreements. Furthermore, there are upcoming elections in Germany, France, Italy, and the Netherlands. A weak economic outlook and the refugee crisis in Europe help far-right parties to gain traction throughout the continent. Regardless of the outcome, it will influence the further development of the European economic policy. On the other side of the globe, the 19th National Congress of the CCP will take place in autumn in Beijing. It is expected that 7 of the 9 members of the politburo of the CCP will be replaced and that a new People’s Congress will be elected.
All of these changes bring uncertainty and risks, but also opportunities which countries have to realise to emerge as stronger nations from these times.
The German Economy in 2016 and an Outlook for 2017
Germany plays an important role in the European and international economy. Even though the growth of the European economy is weakened by various debt crises, Germany was able to register growth in certain, important indices. After a strong fourth quarter, the economy grew by 1,8%. At the same time, the unemployment rate is at its lowest level in recent years. In June, 4,2% of the working population have been unemployed and even in the traditional weak December, only 6% had without employment. Since the Christmas season was better than expected, the consumer price index exceeded the prediction with 1,7% by 4 percentage points. In addition to that, export represented 47% of the German GDP which is an increase of 7% in comparison to 2015. Despite the positive numbers, new ideas are crucial for sustainable growth.
New Laws and Regulations in Germany in 2017
To discover new trends, it is important to consider political decisions, which could have an impact on the economy. The most important changes and predictions are:
1. The monthly unemployment benefit will increase by 5€ in 2017
2. The minimum wage is going to increase by 4% and three more holidays will be added
3. Available jobs are supposed to increase by 1,2% – 1,5%
4. The interest rates remain around 0%
5. Experts predict an increase in export by 6,4% which could result in higher profits and more jobs. Even today, almost 25% of jobs are connected to exports.
6. The increasing price of electricity will continue to stimulate the development of green energy
7. Child allowances are going to increase by 4€ per month
8. Retirement benefits are going to increase by up to 2%
9. The social security contribution rate is going to increase from 2,55% to 2,8%.
Economic Outlook 2017
All political decisions contain positive as well as negative consequences. Therefore, it is important that the German economy continues to utilise the maximal potential from positive trends and minimises the impact of negative aspects.
At the beginning of the new year, the former German minister of economic affairs, Sigmar Gabriel, invited many experts to the symposium “Deutschlands Zukunft – Innovation agenda #de2025” (“The future of Germany – Innovation Agenda”) in Berlin to discuss future, long-term oriented, and sustainable actions for the German economy. According to Minister Gabriel, a conservative policy has no long-term perspective and cannot lead the economy onto a sustainable way.
Germany needs more stimuli in a multiple of sectors, especially in the public and digital infrastructure, private investment, education system and research and development.
1. An important topic is private investments. Statistics show that almost 90% of all investments in Germany are realised by the private sector. In addition to strengthening public investment, creating a growth-friendly environment is one of the main objectives of the federal government. The symposium also set the course for the future, e.g. green energy revolution, digital agenda and electric mobility. Those are the key factors for competitiveness and an important aspect of Industry 4.0.
2. To build a digital infrastructure is an important part to guarantee the strength as an important innovation and industrial hub Germany in the future. Jobs 4.0, the implementation of autonomous machines, the core of the industry 4.0, is not only going to be more important in the industrial sector but also within the working environment as a whole.
3. Finally, the treatment of an ageing society is a crucial issue for most industrial nations. Until 2050, 60% of the population will be older than 65 years. Therefore, the German government is obliged to invest into retirement funds, which can also represent a source of revenue.
Open Markets instead of Isolation and Cooperation
The international uncertainty and the emergence of anti-globalisation sentiments and protectionism should be a warning for countries, which stand for globalisation and be an incentive to work closer together.
China is a fast-growing, emerging country which, already for a long time, proves that cooperation with other countries is an accelerator for growth. Autarky would send China back into the economic world of 1840. That is why the government intends to learn from Germany’s technical development and to work closer together. Already in 2016, Germany was China’s most important trading partner in Europe, which was emphasised by the record number of visits by Angela Merkel to China. Should this trend continue, 2017 would definitively be another successful year for Chinese and German investors.
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Richard Hoffmann is a partner at ECOVIS Beijing China. Richard obtained an honors degree in law and worked in Germany, the United States, and China for various prestigious law firms prior to joining ECOVIS. In addition to being a member of the board of ECOVIS International, he is Supervisor for the China business of a respected German company and shares his extensive knowledge to students by teaching commercial law in China at SRH Hochschule Heidelberg. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV stations. Contact: email@example.com
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