By John Plassard, senior investment specialist at Mirabaud Group
The business press is not paying much attention to it at all, but there is currently a massive strike by German train drivers.
If you think this is an isolated event, you’d be wrong, because the impact is far-reaching, affecting Europe’s leading economy as well as other trading partners. Germany, already in “economic survival mode”, could sink further into uncertainty and cause the current government to falter.
- The facts
The German train drivers’ union has announced nationwide strikes for Wednesday, following protests by farmers and lorry drivers. This massive movement is taking place against a backdrop of nationwide protests over grievances ranging from wages and working conditions to cuts in farm subsidies and increases in road tolls.
Long the locomotive of Europe, Germany is grappling with a potent mix of short-term and deeper structural problems associated with a divided and unpopular government. Depending on the duration of the strikes, the economic and political repercussions could be massive.
- What do the strikers want?
Germany’s national audit office has described the wholly state-owned rail network, Deutsche Bahn, as being in permanent crisis, with debts of €30 billion and punctuality levels at an eight-year low. According to the unions, decades of under-investment are to blame. The train drivers’ union (GDL) has called for “indefinite strikes” from 8 January, mainly because of its demand for a 35-hour week, down from the current 38 hours. Such stoppages could lead to major disruption.
Despite the government’s partial U-turn last week, farmers are continuing to protest plans to cut diesel subsidies and tax breaks for farm vehicles as part of a €900 million reduction in support for the farming sector.
Farmers say the planned cuts will threaten their livelihoods and the competitiveness of German agriculture. They have warned that from 8 January they will be “everywhere in a way that the country has never experienced before”.
Haulers are protesting against the increase in tolls, while some doctors – including, from 9 January, specialists – may decide to close their practices in support of the medical profession’s demands for more state support for an overburdened system.
Later in the year, collective bargaining is scheduled in the retail, construction, air transport, chemicals, metal and electricity sectors.
- What is the average salary in Germany?
According to job site Stepstone.de, the average salary in Germany in 2023 was €53,118 gross per annum. Gross pay is the amount of income before tax, insurance and other compulsory deductions. Net salary is what remains after the deductions.
The study also reveals that the following workers can expect high salaries:
- Representatives of certain professions: doctors (€93,800), engineers (€52,600), IT specialists (€52,000)
- Residents of large cities, particularly in the western states: Munich, Hamburg
- Employees of large companies employing more than 5,000 people
The lowest salaries are found in the hotel industry (€35,700), agriculture and forestry, fishing (€36,100) and employees of small businesses (fewer than 50 people).
Experience has a considerable bearing on income levels. For example, a specialist with between 6- and 10-years’ experience earns around 40% more than a young specialist with between 0- and 3-years’ experience.
There is also a difference in salaries between East and West Germans. If we exclude Berlin, the average salary in Germany for the eastern states is €38,670 a year, whereas it is €45,461 in the western states. The difference is almost 15%. It is interesting to note that in Germany, employees responsible for personnel management receive special bonuses. For example, in the tax consultancy sector, the personnel responsibility bonus is 78%, and in the insurance sector it is 48%. Management positions in mechanical engineering (€96,636), the commercial sector (€94,263) and sales (€84,143) are also well paid.
- Germany’s economic state
Germany has recently sunk into an economic slump, following decades of exuberance after the 1990s. Today, Germany is home to:
- Negative growth: The German economy contracted by 0.1% in the third quarter of 2023, reversing the 0.1% growth seen in the previous three months. Private consumption expenditure fell by 0.3% (versus 0.2% in the second quarter), due to the impact of escalating interest rates and persistently high levels of inflation. On an annual basis, GDP fell by 0.4% after rising by 0.1% in the previous period.
- Sagging confidence: The Ifo business climate indicator in Germany is close to the low of 2020. It unexpectedly fell to 86.4 in December 2023, its lowest level for three months, from 87.2 in November. Companies have become more pessimistic about their expectations for the coming months and about the current state of their business.
- Negative retail sales growth: German retail sales fell by 2.5% month-over-month in November 2023, the biggest fall since April 2022, reversing the 1.1% growth recorded in October. Sales of non-food products fell by 3.6%, with internet and mail order sales losing 2.8%, while sales of textiles, clothing, footwear and leather goods rose by 2%.
- Manufacturing PMIs in contraction zone: The German HCOB Manufacturing PMI came in at 43.3 in December 2023. It therefore remains firmly in the contraction zone. Production and employment recorded solid and slightly accelerating declines. At the same time, manufacturers cut their workforce at the fastest pace since October 2020, as they adjust to lower capacity utilisation.
- Services PMIs in negative territory: The HCOB Germany Services PMI hit 49.3 in December 2023. This figure indicates a slight acceleration in the rate of contraction in the services sector. The tightening of financial conditions, the weakness of the economy in general and the hesitancy of customers due to political uncertainty and geopolitical tensions have weighed on the services sector.
- Economic impact
The German Economic Institute (IW) has conducted a study to estimate the economic impact of strikes in Germany. The study found that strikes cost the German economy between €3 billion and €5 billion a year, which represents between 0.04% and 0.07% of the country’s GDP.
The study identified several factors likely to influence the cost of strikes, including:
- Duration: Longer strikes tend to have a greater economic impact.
- Sectors affected: Strikes in sectors such as transport, manufacturing and public services can have a greater impact on the economy.
- Timing: Strikes that occur during peak seasons or national holidays can be more disruptive and costly.
The study showed that the main economic impact of strikes is tied to reduced productivity and loss of income.
When workers are on strike, they are unable to produce goods or services, which can lead to delays and disruptions in production. It can also lead to a loss of income for businesses, as they are unable to sell their products or services.
Despite the negative economic impact, the study also notes that strikes can have positive effects, such as:
- Improving workers’ working conditions and wages: Strikes can force employers to negotiate with workers and reach agreements on these issues. This can lead to a fairer distribution of wealth and power in the workplace.
- Promoting social dialogue and conflict resolution: Strikes can help to highlight workplace issues and encourage dialogue between employers and trade unions. This can lead to more effective dispute resolution mechanisms.
In the case of the Lufthansa pilots’ strike in 2019-2020, the airline estimated that the strike cost it €1.5 billion in lost revenue. The strike also sparked anger among passengers and criticism of the airline’s management.
On the other hand, the 2022 Verdi strike in Germany’s public sector led to agreements providing pay rises for public sector workers. It is estimated that these increases cost the government €4.3 billion.
Overall, the economic impact of strikes in Germany is complex and varies according to the stoppage concerned. Negative effects are mainly due to reduced productivity and loss of income, while positive effects can take the form of improved working conditions and wages for workers.
The main factor, of course, is how long the strike lasts…
- The German government on the brink of collapse
Support for Chancellor Olaf Scholz’s coalition government has fallen to an all-time low of 17%, according to a new poll conducted by the country’s public broadcaster in December. The ARD poll showed that 82% of Germans were not satisfied or not at all satisfied with the coalition government’s performance over the last two years.
The poll put support for Chancellor Scholz’s Social Democratic Party (SPD) at 14%, two points lower than at the beginning of November. The SPD’s coalition partner, the Green Party, received 15% support in the poll. The second coalition partner, the Free Democrats (FDP), has 4%.
Germany’s main opposition, the conservative alliance of the Christian Democratic Union (CDU) and the Christian Social Union (CSU), is backed by 32% of those polled. The poll found that 21% of German voters would vote for the far-right AfD, making it the second largest party behind the CDU/CSU bloc.
When asked about the current budget crisis and how to close the 2024 budget deficit, most respondents said that the government should take cost-saving measures. Some 54% of Germans said they would support possible cuts in military aid to Ukraine. A further 41% said the government should consider allocating less funding to investment in climate-friendly technologies.
- Conclusion
It would be a serious mistake to play down the current strikes in Germany. In fact, they are going to leave many scars both politically and economically. They reflect the gradual deterioration in the economic fabric of the world’s leading economy, highlighting the fact that the budgetary dogma of yesteryear may have eroded future growth.
