In an interview with DW-TV, Martin Wansleben, the CEO of the German Chambers of Industry and Commerce (DIHK), says that pessimists might make Germany's current economic downturn worse than it actually is.
German companies are struggling to get new orders
DW-TV: Mr. Wansleben, the Germans are infamous pessimists. The glass is always half empty. Right now, the general mood when it comes to the economy seems to be negative. What's your feeling?
Martin Wansleben has been DIHK's CEO since 2001
Martin Wansleben: My personal feeling is that things are great. We've had problems like this in the past. Sometimes the business cycle experiences a downturn. But we're well advised to prepare for what's coming and not just approach it assuming it's all doom and gloom ahead.
But we're hearing horror stories. People are talking about a recession in Germany. What do you think?
I'm being cautious. We're used to evaluating economic growth from quarter to quarter. We used to do it by looking back to the same quarter of the year before. If we look at this year like that, then we saw 3 percent growth in the second quarter of 2008 compared to the previous year. But if we compare (this year's) second quarter to the first quarter, then growth is declining. So, there is still growth, at least two percent or more this year. That's really not a recession.
So you're not worried about the German economy?
I'm a bit worried about the general mood in Germany and regarding the economy, about what decisions are being made. But you could worry about things like that anytime. And who doesn't think that they personally, or other people, or society as a whole, should be doing more?
Does that mean the mood is worse than reality?
I think that the mood is worse than we should actually expect as normal. The economy has been doing really well for the past three years, so we shouldn't be too worried if it performs less well at some point. But -- and this is important -- nor should we just lean back and say it'll all work out. We should be cautiously optimistic and work hard. That way, even in an economic slump, we'll be fine.
So what do you think needs to be done?
Rising gas prices have shocked Germans, Wansleben says
The first thing is to look at the facts and the numbers as they really are. And the second thing is, I think the government needs to realize that they can't just plod along till the next election in September next year. Somebody simply making trips abroad isn't going to help. We need to make important decisions at home now. And the same goes for the European level. We're coming up to a decisive moment for Germany. I can imagine that, with hindsight, we'll look back to the early summer as a psychological turning point. The energy prices gave us quite a shock. With gas prices at 1.60 euros ($2.34) a liter (quarter gallon), many of us have paid 80 euros to fill up a 50-liter tank and just thought -- what on earth is going on? I think Germans are worried about who's taking care of things. Ordinary people here might be feeling that members of the elite are only watching their own backs.
And trying to protect their image perhaps?
Image, or whatever else they have to protect. But not pooling their knowledge to try and figure out what the problems are, or the challenges, and a joint approach. That's worrying, and that's why there's all this talk of doom and gloom. So, now the talk of recession is spreading, just because of a bit of uncertainty and worry. A few weeks or months ago it was about energy prices, and now it's practically a yearning for a recession -- so much yearning that it could practically cause one.
But the low morale could also be caused by people having less money in their pockets. High prices, and salaries not rising by as much as people expect in a strong economy. Is that a problem too?
I think that spending is key to that -- how much money people have to spend. And rising prices are part of that, as are energy and commodity prices.
But the government can't do anything about that.
Even store rebates of 19 percent to shop tax free haven't helped much, it seems
No, the government can't do anything about that. Back in 2006 it seemed like a good time to raise sales tax as the economy was booming. Many hoped the cycle of business would sort of wash over that fact and no-one would notice. But now we have to accept that the rise in sales tax has been a real blow to the economy. It was a big mistake. It has to be corrected somehow. Also, we're facing what economists call "cold progression." Today, people who are earning only double the average income are already in the highest tax bracket. A lot is being skimmed off by the state, but the state hasn't been doing enough to figure out revenue policies that would put more money in people's pockets. It's simply the wrong approach to think the budget can be balanced by taxes and fees.
The whole of Europe feels the results of the German economy weakening. What effects do you think that will have?
First off, other European countries have already weakened, and even before Germany started to feel the pinch…I think that the economic slowdown, as normal as it is, is becoming worse -- partly because of energy and commodity prices, which are eroding purchasing power. But also because of the financial crisis, which is hitting very close to home here. A lot of assets have been wiped out, and financial opportunities for private investors, and leeway for the banks.
But are the businesses that you represent already feeling the slump? Are they noticeably less bullish?
Yes, orders are decreasing. It hasn't affected the factories yet. There are still plenty of orders, and they're still producing at full throttle. That's why we're not noticing anything different in the rate of growth at the moment. And that's why we have to be careful. It could be that the economy will pull back, the euro will fall and oil prices will drop.
Is a weaker euro good?
It'd be good if the euro stopped being overvalued. That's why it's good that it's falling right now. But I'm not sure about the idea the more the euro falls, the better. That's not always the case, so we need to watch out.
And finally Mr Wansleben. What is the current state of the German economy? Is the glass half empty or half full?
He's hoping things will go up again
I think we're right where you'd expect us to be. This year will still be a good year. Everyone knows things are going to get worse at some point. Now there are more and more signs that that will happen next year. I think the most important thing is how the economy is structured, and it's fine. We're really well represented globally. Germany is one of the very few countries in the world where middle-sized companies are independent on the world markets, and not beholden to bigger ones. This international anchorage helps us to use all the possibilities out there: in Russia or China, or India or South America. I think it's important to reiterate that.
Another thing is that over the past 10 to 15 years, German companies have learned a lot from the financial crisis of the early 1990s. They've left no stone unturned, their cost structures are totally different, and there's a lot of innovation in processes and products. I don't think that we need to be pessimistic right now. As I've said, what I'm worried about is politicians choosing to stick with unproductive policies. If the economics minister says it would actually be good to implement some reforms, but the majority doesn't back them, that shows that even government officials can see the government is lagging behind on what's actually important.