Joachim Nagel: Is Germany's "business model" at risk?

Speech by Dr Joachim Nagel, President of the Deutsche Bundesbank, at a talk followed by a panel discussion ikf institut für kredit- und finanzwirtschaft e. V., Bochum, 5 June 2023.

Central bank speech  | 
06 June 2023

Check against delivery 

Accompagnying presentation of the speech. 

1 Welcome

Ladies and gentlemen,

Thank you for your kind welcome and also for inviting me to Bochum. Here in Bochum you will find both the old and the new. VfL Bochum is one of the country's oldest sports clubs. Though the football department was only added just over a century later, it plays a huge role within the club. And right now, following a fantastic three-nil victory over Leverkusen, the team can look forward to playing in Germany's top league next season. The city's Ruhr University, meanwhile, is fairly young by comparison, having been founded during the era of structural change in the 1960s. Tradition and a willingness to embrace change – both of these qualities are needed. And these two things will pop up throughout my speech here today, which will be about what the future holds for Germany's economy. My remarks today will centre around industry – or, to be more precise, around manufacturing, to use the term from the economic statistics.  

Is industry about to wither and die? – that was the pointed headline used by the German journal "Der Spiegel" late last year to fire up the debate surrounding industry's prospects for the German economy. That debate had gained increasing traction. Our industry is indeed facing significant challenges, three of which I would like to highlight today. First, supply chains. During the pandemic, these turned out to be much more vulnerable than we had previously thought. Bolstering supply chains is of fundamental importance for any firm. And for our aggregate economy as well, open as it is. Second, the supply of energy. Even before Russia's war of aggression against Ukraine began, German electricity prices were significantly up on the OECD average. Gas wasn't particularly low in price by international standards, either – despite the narrative about cheap Russian gas. Over the past two years, but especially as Russia's war played out, energy costs then skyrocketed at times. And the years to come will probably see them persist at above pre-war levels here in Germany. Partly as a probable knock-on effect of decarbonisation, because the price of carbon is likely to rise. And investment will have to be made in order to become climate neutral by 2045. The third challenge is demographic change. The German population is shrinking and getting older overall. That's putting a strain on the labour supply and on trend economic growth.