During his visit to New Delhi, German Chancellor Olaf Scholz seeks to enhance trade cooperation between the two countries, especially in light of the decline in this cooperation with China, as his ambitions are not limited to… Germany It aims to open new markets for companies, but also includes bridging the labor shortage gap that threatens the continued growth of German economic growth, according to experts.
However, this strategic shift carries with it geopolitical challenges that may reshape the power equations in the country Asia. Will cooperation with India be the solution that Germany is waiting for to revive its economy? Will it open its doors to a new partnership that will overcome the restrictions of recession and compensate for China’s losses? Is India capable of being the ideal strategic alternative to Germany in the next stage?
Germany’s economy has crises and structural problems
In contrast to many Western economies that were able to recover significantly after the Corona pandemic, the German economy is still suffering from a state of stagnation as a result of challenges and crises, most notably the energy price crisis caused by the Russian-Ukrainian war and the weakness of important global economic partners such as China, whose economy is witnessing a slowdown. Clearly, the challenges facing global supply chains. In addition, the German economy suffers from structural problems, such as an aging population and a shortage of skilled workers, which limit its ability to grow in the long term.”
The country’s economy recorded a contraction of 0.3 percent in 2023, while German economic institutes expect that Berlin will once again witness a decline in the total gross domestic product during the year 2024, by 0.1 percent, as it is unable to emerge from the crisis of its industrial model, and said Geraldine Danny Kendelik, from the Institute. DIW in Berlin, said in a statement that “in addition to the weak economic cycle, the structural transformation is also weighing on the German economy.”
The German economy also faces the risk of decline for two years in a row. Although a recovery is expected during the year, growth will not regain its pre-Covid-19 pandemic pace, as predicted by a group of five institutes (DIW, Ifo, IfW Kiel, IWH, and RWI).
International Monetary Fund estimates indicated that the German government must take measures to confront the economic decline in the country, as the Fund’s expert, Oya Celason, said, “Public investments in Germany should be greater, because it is among the industrialized countries that have the lowest rates of public investment.” She pointed to the need to reduce bureaucratic obstacles and reduce administrative burdens on the economy.
The Fund recently lowered its expectations for the German economy, expecting it to grow by only 0.8 percent next year, a decline of 0.5 percentage points compared to the Fund’s expectations last July.
Expectations of a slowdown in Chinese economic growth
The second largest economy in the world is suffering from a slowdown in growth as a result of several crises, the most affecting of which is the structure of the country’s economy, the real estate crisis, in addition to high unemployment rates among youth and a slowdown in household consumption. The government has been trying for more than a year to stimulate its slowing economy by launching several packages, perhaps the most prominent of which are: Reducing the mandatory reserve that banks must maintain and lowering the reference interest rate for lending, in order to maintain a targeted economic growth of 5 percent.
However, in a report published on Tuesday, the International Monetary Fund lowered its expectations for the growth of the Chinese economy in 2024, with it facing a further slowdown next year, warning of the worsening real estate sector crisis, as it expected growth of 4.8 percent in 2024 compared to its previous estimate of 5 percent, and the government’s expectations. In Beijing, it is approximately 5 percent.
The Fund explained that it expects economic growth in China to slow to 4.5 percent in 2025, and warned that the worsening of the real estate sector crisis there at a higher pace than expected is among other multiple risks threatening the prospects of the global economy.
Why India?
Under these circumstances, and amid the decline in its trade and political relations with China, Germany turned to India as a promising economic partner. India has a large and emerging market, a young and qualified workforce, in addition to great ambitions in the field of technology and innovation. Through this partnership, Germany seeks to diversify its trading partners and open new markets for its products and services, which contributes to enhancing its economic growth.
German Chancellor Olaf Scholz is currently visiting India, his third since last year, accompanied by several of his government ministers, with the aim of holding discussions between the third and fifth largest economies in the world.
The Schulz administration agreed to increase the number of visas granted annually to skilled Indian workers to 90,000, compared to 20,000 at the present time. Schulz said, “Our message is that Germany is open to skilled workers.”
India and Germany signed an immigration agreement for the first time two years ago to facilitate the entry of Indian professionals and students, and Berlin also pledged to facilitate the visa application process and improve recognition of Indian professional qualifications in Germany.
Germany’s motives behind strengthening relations with India are not only limited to economic dimensions, but also extend to political and strategic dimensions, according to experts.
Common ground
In an exclusive interview with the “Eqtisad Sky News Arabia” website, Dr. Nidal Al-Shaar, economic expert and chief economist at ACY, said: “The strategy of focusing on India, which Germany has recently begun to implement, stems from a common ground, but at the same time this ground contains some contradiction. On the one hand, there is resentment on the part of India towards China due to border problems, and on the other hand, there is a kind of caution and fear for Germany to depend on China with regard to international trade relations. We must also not forget that Germany has suffered greatly from its relationship with Russia, and it does not want this situation to be repeated. “With China.”
At the beginning of the Russian-Ukrainian war, Germany was one of the countries most affected by the shortage of energy and food, and it is now cautious and studying the issue of diversification in trade relations. India was the appropriate and logical destination to forge a new relationship with it that would compensate for its relationship with China and at the same time protect it from developing a new relationship with China. Her options are in one basket, as he put it.
In this context, Dr. Al-Shaar pointed out that “Germany faces a challenge in its ability to find a kind of balance between India’s relationship with Russia and Germany’s relationship with Russia, as Germany’s relationship with Russia is often characterized by hostility, while India’s relationship with Russia is a relationship of friendship.” But what they have in common is the negative relationship with China, and thus this relationship constitutes the new strategic ground followed by Germany, which is evident by focusing on India, and we see this through the visits of the German Chancellor to India and the frequent visits of the Indian Prime Minister to Germany.”
Wide market
Economist Dr. Al-Shaar explains that India is a wide market for Germany, as the volume of trade between the two countries is currently estimated at about 33 billion dollars, but Germany finds that this number can be expanded significantly so that it can exceed 60 or 70 billion dollars if it is able to Concluding free trade agreements with India.
He added: “India and the European Union failed in the previous period to build a smooth and clear trade relationship, and therefore Germany is currently trying to compensate for this failure by being alone in a good relationship with India, and of course the French model is completely clear for India because France is currently India’s largest partner, which means that Germany will become a competitor to France in this field, and this may make the European Union more ready than ever to build new commercial, technological and even cultural relations with India.”
India is a source of young labor
On the other hand, Germany suffers from an aging population structure, which means that it needs a workforce, and India is still by far the largest source of young labor. There are currently more than 45,000 Indian students studying in Germany, and most likely these will become ambassadors for India and can Attracting them to work in the German economy, and as for transferring technology, India is capable of that. At the same time, there is a kind of desire from major German companies to open branches or factories in India and invest in cheap labor resources, according to what Al-Shaar said.
The chief economist at ACY concluded, “There are many factors that bring India and Germany together, and the two countries should have exploited them long ago, but it seems that the Russian-Ukrainian war and the border problems between India and China were the main reason currently for this rapprochement, which I believe will increase with time.”
German companies plan to invest in India
For his part, economic expert Hussein Al-Qamzi said in his interview with the Sky News Arabia website: “A survey conducted by the consulting company (KPMG) showed that there are many German companies planning to invest in India, as the percentage reached 59 percent of the companies surveyed that said they intend to invest.” Or expanding its investments this year, this indicates that India is an important investment destination for German companies in the future.”
Factors of Germany’s focus on India
Al-Qamzi confirms the growing interest in Germany in shifting its economic focus from China to India, pointing in this context to several factors driving this shift, which are:
- With the slowdown in economic growth China As geopolitical tensions with Western countries increase, Germany is seeking to explore alternatives to reduce its dependence on Chinese trade.
- India, with its large market, growing economy and relative political stability, stands out as a strong candidate to attract more German investment.
- German companies are attracted by India’s low labor costs, availability of skilled workers and large consumer base.
- By 2029, about 80 percent of German companies are expected to increase their investments in IndiaThis represents a doubling compared to previous years.
However, there are still challenges, such as India’s bureaucratic hurdles, complex tax system, and lack of infrastructure, that may hinder this transition. Despite these obstacles, German companies see India as an important part of the “China + 1” strategy, meaning that they will continue their business in China while diversifying their investments in other markets such as India, according to the economist Al-Qamzi.