Writing in the latest Monthly Report, Bundesbank economists explained how the weak performance of German exports in recent years has been accompanied by significant market share losses for the German export industry. German export market shares have been contracting since 2017, and especially since 2021. As a result, the losses in market share have contributed significantly to the sluggish growth of the German economy, they continued. 

Structural challenges for the German economy

More than three-quarters of the losses in export market shares between 2021 and 2023 were due to a deterioration in the competitiveness of German exporters with regard to product groups. Competitiveness declined in many sectors. In the authors’ view, this points to fundamental structural problems in the German economy that have weighed on many firms. These problems include demographic change, the shortage of skilled workers and rising unit labour costs, as well as an increasing amount of red tape. The machinery industry, electrical industry and energy-intensive sectors such as the chemical industry were the biggest contributors to the drop in competitiveness, the authors wrote. The global COVID-19 pandemic and Russia’s war of aggression against Ukraine disrupted supply chains and caused energy prices to rise, with the latter putting an additional strain on exports by Germany’s energy-intensive economic sectors: Overall, the findings point to the existence of supply-side problems in the German economy. 

Germany is losing market share where China is gaining ground

Compared with other countries, the authors wrote, Germany has lost ground and is now underperforming against other advanced economies: By international comparison, a particularly large number of firms in Germany appear to complain of labour shortages – and not just during periods when the economy is booming. In addition, China increasingly emerged as a competitor of German firms. “Since 2019, in dealings with its most important trading partners, the German export industry has tended to lose more market share in the very areas where China has gained ground,” they explained. This relationship had not been seen in the years before. 

Another factor behind the losses in market share was weak global demand for products that dominate Germany's export structure, especially motor vehicles and aerospace technology. 

Reforms is essential for competitiveness 

According to the article, urgent action is needed to boost competitiveness: In particular, a reliable framework that is conducive to employment and investment needs to be established. To this end, incentives to work should be strengthened, barriers to the immigration of skilled workers and unnecessary red tape should be cut back, tax incentives for private investment increased, [...] to name a few examples. Social security reforms are also essential if increases in costs and social contributions are to be limited, the economists added. It is vital to press ahead efficiently with the energy transition and help firms diversify their supplier networks through new free trade agreements. As the economists concluded, only bold reform will enable Germany to improve its standing in the global market.