analyse
High costs, too much bureaucracy: Currently, most people are talking about the problems of the German economy. But apart from that, it has a lot to offer on the world markets. How can the companies score points?
The German economy is in crisis and is undergoing structural change: the “old” business model no longer works. In addition to trade conflicts and location problems, one reason is also competitive pressure from China. Goods that were previously “Made in Germany” are increasingly being produced by companies from the People’s Republic and sold more cheaply.
In order to open up new markets for export-oriented companies in Germany, the federal government is currently traveling around the world: to India, Southeast Asia or the Gulf region. But what can she advertise with? What are the strengths of the economy in this country?
Still export dominance in many areas
Table of Contents
“The strengths of the German economy continue to be where they have been for a long time: ‘Made in Germany’ means high quality, high innovation, strong customer orientation and accompanying services. We have many highly specialized niche providers and hidden champions – for example in mechanical engineering,” says Jürgen Matthes from the German Economic Institute (IW) to the ARD financial editorial team. All of this is still in demand on the global market.
Because China is catching up in terms of innovations and the market is becoming increasingly narrow, the German economy is increasingly specializing. But the core remains the same. “Our strengths lie primarily in mechanical engineering and the automotive industry, primarily in combustion engines, but also, for example, in specialty chemicals, the pharmaceutical industry and medical technology as well as in important sectors of the electrical industry,” says Matthes.
By value of goods, companies exported primarily motor vehicles and parts in 2024. Machinery and chemical products followed in second and third place. An IW study from last year shows which areas the German economy is particularly dominant in comparison: According to this, the German share of global exports is at least 30 percent in around 180 of 5,300 product groups – including medicines, chemical pulp and optical microscopes. For some painkillers it is even over 90 percent.
However: in 2010 there were still 240 product groups, and the dominance is crumbling. The advantage of German products has always been high quality. These still exist, but are now being replaced on the world market by another circumstance: cheap prices. “If a Chinese supplier offers products with a quality that is perhaps 20 to 30 percent lower than Germany’s for 50 percent less, companies in this country increasingly take advantage of them instead of continuing to source their primary products from Germany and the EU,” says Matthes.
High quality and huge wealth of experience
In addition to trade protection instruments and measures against rising costs, experts say new alliances can be a means of combating low prices. Last week, the EU and India agreed on a trade agreement – including significantly lower tariffs. This can also help the German export economy. “If this agreement had already existed, all of our machines would probably be German or at least European,” says Sanjay Malhotra daily news. He is the head of an Indian company that produces electronic parts for European car manufacturers.
At the same time, the service sector, which is becoming more relevant, should also receive greater attention, says Matthes, which he also recently analyzed in an IW study. Classic industrial companies have apparently also recognized this, as they are increasingly becoming service providers. According to an analysis by the Munich Ifo Institute, their share of sales is shifting more from pure production to assembly, maintenance and advice – also thanks to the high German standards.
“Especially in medium-sized companies, there are still a lot of world market leaders who come from Germany. This means that we have accumulated a huge wealth of experience that we now have to rethink accordingly,” explains economist Martin Lück from Macro Monkey. Industry now needs to be thought differently. “No more than the classic smoking chimney, but perhaps more like the open-plan office in which the computers are glowing and people put their heads together and find the best solutions in the interests of the customers.”
Excellent research, but not enough Follow-up financing
Nevertheless, German machines, chemicals, cars and electronics are still needed. “And that’s why it’s now important to continue to maintain our ability to innovate in order to stay ahead and continue to be better than the competition,” says Matthes. This means you can usually charge good prices for customer-specific products. Edgar Walk, chief economist at Metzler Asset Management, also describes innovations as crucial in competition with other countries because they are catching up in terms of quality.
“You always have to be the one who is technologically most advanced in your area. That’s the only way to defend your market share or maybe even build it up,” says the economist in an interview with ARD financial editorial team. It is therefore important to continue to invest heavily in research and to apply the results more widely in companies. “Germany is still an extremely strong research country,” says Walk. “We have extremely strong basic research.”
You can see this, for example, in the many patents in the area of artificial intelligence (AI). And Germany is also a world leader in medical technology and has great potential, says Walk. The development is also reflected in the record numbers of start-ups. 3,568 start-ups were founded in 2025 – more than ever before in a year. The start-up association recently reported that the start-up dynamic is increasing noticeably, particularly in the software, medicine and food sectors.
“Our excellent research plays a key role as a starting point for innovation and new start-ups,” said deputy chairwoman Kati Ernst. “If we make it easier for scientific start-ups and prioritize innovation, this can give our economy additional tailwind.” Economist Walk sees this as a core problem for the German economy: “Innovative power means that products and innovations emerge from basic research. Unfortunately, we’re not that good at that yet.”
Reforms needed for more innovation
This is due to the fact that young companies are not well financed via the capital markets, explains Walk. IW researcher Matthes also sees the same difficulty at universities and colleges: “We always have the problem that we research and develop things but there is not enough capital on the market and the regulations are too high.” Instead, the young founders took their ideas to market abroad and no jobs were created at home. In order to prevent migration, the federal government recently presented an expert report with France. The proposals include a reform of private and company pension schemes.
Dominik Groll, labor market researcher at the Kiel Institute for the World Economy, also points to the very high protection against dismissal in Germany: “Innovation, inventions and technological progress is a very uncertain process. In the high-tech sector, eight out of ten projects fail.” It is currently very expensive to restructure the company in the event of failure. “That’s why some companies don’t even take this route, but only deal with marginal innovations where the risk is not that high.”
In addition, close cooperation between universities, state research institutions and companies is important, emphasizes Matthes. “We have a strong innovation ecosystem, which is definitely one of the core strengths of the German economy.” Dual training remains another strength – even if companies are currently reporting that school training is getting worse and worse. Economist Walk also sees it as more investment in education.
