Germany’s economic powerhouse has been the south for decades. Bavaria and Baden-Württemberg are also in the top group in the Corona crisis – with negative numbers. Why is it?
Munich / Mannheim – Upside down business world in the Corona crisis: The south of Germany, which has been strong for decades, has been particularly weak since the beginning of the pandemic. Bavaria and Baden-Württemberg are suddenly in the top group with negative numbers. The number of short-time working in the two federal states, which are used to success, are just as above average as the slump in gross domestic product. Why is it – and is there a bigger problem emerging than just Corona?
The bare figures: In Baden-Württemberg, economic output shrank by 7.7 percent in the first half of the year, in Bavaria by 7 percent – both worse than the national average of minus 6.6 percent. And when it comes to short-time work, Bavaria and Baden-Württemberg were in first and second place nationwide in August, according to estimates by the Munich-based Ifo Institute. Nowhere else was the proportion of workers affected higher.
Export-dependent industries in the southwest
The weal and woe of the industry, which is very strong in both southern countries, depends on exports, which collapsed during the crisis. “Economic strength is a curse and a blessing at the same time: A crisis has a much stronger impact in these areas than in the service sector, which can cope with it more easily,” says Achim Wambach, head of the ZEW economic research institute in Mannheim. “When supply chains are broken, it affects the service sector less than the manufacturing sector.”
The economist points out that Baden-Württemberg was hit harder than average in the 2008/2009 financial crisis. “Conversely, production quickly started up again afterwards.”
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In contrast to many other regions in Europe, the importance of the manufacturing industry in southern Germany has even grown again in the past decade. In Bavaria alone, the metal and electrical industry (M + E) created over 160,000 new jobs from 2010 to 2019, according to figures from the local industry associations bayme and vbm.
“In Bavaria and Baden-Württemberg, we have industries that are very export-dependent, particularly a strong dependency on the automotive sector,” says Jürgen Michels, BayernLB’s chief economist. “That makes it harder to quickly find your way back to old strength.”
The automotive industry was already in trouble before Corona: The gradual departure from the internal combustion engine means a major challenge for the southern German manufacturers Daimler, BMW and Audi, as well as international trade conflicts or the aging of the population in industrialized nations.
Focus more on future areas
“I tend to see the problem that the structure of the economy as a whole is very much geared towards a few products,” says Robert Lehmann from the Munich Ifo Institute. “If you have only a few pillars, then in the event of a crisis you plunge into a deep recession. It would therefore be welcomed to establish a broader economic structure. “
In a joint study with the Prognos Institute, BayernLB recommended a reorientation – away from the previous dependency on exports and towards greater importance for the domestic market.
But does this mean that southern Germany is now condemned to gradual decline? None of the economists surveyed believe that, but economic success is naturally not a sure-fire success.
“If you do not take countermeasures, we could find ourselves in a situation in which we are longer at the lower end of the growth scale,” says BayernLB chief economist Michels. “But I also think that after a period of weakness we can find our way back to our old strengths if we invest in future areas in good time. The first steps in this direction have already been taken. “
Renewable energies and environmental technology are among the future areas of BayernLB and the Prognos Institute in their study. Germany as a whole is in a better position in terms of financial leeway than Italy or Greece, for example, and can promote investments in infrastructure, says Michels. “That definitely plays a role.”
EU remains the largest export market
The situation of exporters is also expected to improve again. According to ZEW President Wambach, China still offers potential. “The Chinese have a per capita income of 25 percent of the OECD average. We will see a lot of growth there, and Germany is very well positioned to participate. ”It is right that international tensions are increasing – but on the other hand the potential is there. “When the US election and Brexit are over, the EU’s investment agreement with China is over – so if there are positive signals, the export sector will remain a strength.”
Robert Lehmann from the Ifo Institute sees it similarly. “The largest export market for German industry is still the EU,” says the economist. “And in other European countries we see that the industries that demand German products are recovering strongly.” The USA is the second most important export market. “If there is a change of government there, the current protectionism could end again.”
In any case, the industry itself does not consider a departure from industry to be sensible. Overall, the strong industrial structure leads to more dynamic economic development – and thus to continued relatively low unemployment figures and an overall significantly higher level of prosperity than in federal states with a lower proportion of industry, argues vbw, the umbrella organization for the M + E sector in Bavaria.