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The German economy in an election year

September 24, 2017

Let's suppose Bill "It's the economy, stupid!" Clinton was right, and citizens vote primarily based on the state of the economy. DW's Andreas Becker has a look at how the German economy is actually doing.

Road work ahead
Image: picture-alliance/dpa

At first glance everything looks good. The German economy is growing steadily (up 1.9 percent in 2016), unemployment is at its lowest level in decades, tax revenue is flowing in like never before and the finance minister has ended another year without new debt.

Companies are also optimistic, and their products - from cars to machines to pharmaceuticals - are bestsellers around the world. The economy is doing so well that some are already dreaming of tax cuts while others are afraid of the whole thing overheating.

Collapsing infrastructure

At the same time, however, there is a serious problem: Germany's roads, bridges and schools are crumbling. This is a "central weakness in Germany," according to a report by an expert commission, which since 2014 has been examining the state of the public infrastructure on behalf of the economy ministry. 

Traffic jam in Germany
A traffic jam in BerlinImage: Getty Images/S. Gallup

The German motorists' club ADAC reckons there are more than 1,900 traffic jams on German roads every day. There is also not one day without train delays or cancellations.

For one in 10 children, parents cannot find a place in a day-care center despite their legal right to such a slot. And 1,041 public swimming pools were either closed or are threatened by closure.

"Public spending has been cut, many public services have fallen victim to the red pen or have been privatized. Surcharges have been raised and user fees have been introduced," complain trade union representatives in the expert commission report.

Too little money for education?

Germany also invests much less in education than other OECD countries, a group of 35 relatively rich countries. On average, they spend 5.2 percent of their economic output on education. Germany only spends 4.3 percent.

The differences in digital infrastructure are even more marked, especially the access to a fast internet connection.

Fiber optic cables, which are up to 10 times faster than conventional DSL lines, on average account for 20 percent of all internet connections in OECD countries. Japan and South Korea are at the head of the class with around 75 percent, while the Scandinavian and Baltic countries are also well above average. Germany, which has made a show of Industry 4.0, is far behind at just 1.6 percent.  

In international rankings on competitiveness and the ease of doing business, Germany has recently fallen behind and is not even among the top 10.

Percentage of fiber connections in total broadband subscriptions

But, of course, citizens do not only vote based on economic data. Their personal situation is at least as important as any government data.

Many voters can look forward to higher wages, which over the past three years have risen by about 2 percent. But it was a long wait through wage stagnation to get there. Between 2000 and 2011, and adjusted for inflation, the Germans actually had 1.8 percent less in real terms in their pockets. While the Danes, British, Americans or the French could look forward to gains of between 10 and 16 percent.

The shrinking middle class

Above all, the German middle class is concerned because it has been shrinking for 30 years.

"The 'middle-income range' is being sandwiched so to speak," according to researchers at the Institute of Work, Skills and Training (IAQ) at the University of Duisburg-Essen in a recent report. At the same time, the number of those who either earn significantly less or significantly more than average is increasing. "Overall, these findings indicate a growing income inequality," concluded the researchers.

Additionally, Germany has one of the largest low-wage sectors in the European Union - around 23 percent of all workers toil away for small paychecks. In countries such as Italy, France, Denmark and Finland it is less than 10 percent. In Belgium and Sweden it is less than 5 percent.

Low-wage eaners

What's more, unemployment statistics also only tell part of the story. In May 2017, officially fewer than 2.5 million people were unemployed, marking the lowest rate since 1991. But a total of 6.2 million people depend on state support. These include those who do not earn enough to live on as well as any children in their households. Since 2005, after the "Agenda 2010" labor and welfare reforms came into effect, the number of beneficiaries of social benefits has not fallen nearly as much as the number of unemployed.

There are a lot of economic questions in this election year. Should the government invest more in infrastructure and education? Should it wait for the next recession? Should it cut taxes so that citizens have more money in their pockets? And what about "social justice," which the Social Democrats trumpeted as a major campaign issue?

These questions of distribution create the background against which other burdens on the public purse are being debated: everything from spending on refugees and migrants to the cost of the "Energiewende," the country's energy transition policy, to eurobonds and the possibility of yet another round of debt relief for Greece.

Becker Andreas Kommentarbild App
Andreas Becker Business editor with a focus on world trade, monetary policy and globalization.