Among G7 Countries, Only Germany Expected to Experience Negative Growth
"South Korea Also Faces Manufacturing Challenges, High Dependence on China, and Labor Supply Shortage Crisis"
As prospects emerge that Germany's growth recovery, heavily reliant on manufacturing, will not be easy, the need has been raised for South Korea, which has a similar economic structure, to achieve industrial diversification and prepare for labor supply shortages.
According to the International Finance Center's report on June 3 titled 'Background and Implications of Prolonged German Economic Sluggishness,' Germany's own growth engine has weakened due to aging and lack of investment, and its growth model, highly dependent on external factors, has reached its limits amid the US-China conflict, the pandemic, and the Russia-Ukraine war.
Germany's manufacturing sector contraction has led to stagnant growth for several years, causing its contribution to Eurozone growth to decline. The International Finance Center explained, "Germany's manufacturing production has been sluggish even before the pandemic due to cumulative effects of Brexit, China's economic slowdown, and the global automobile sales peak," adding, "Even after the easing of pandemic-induced supply chain disruptions, rising energy prices, global economic slowdown, and the concentration of deferred demand in the service sector are restricting the recovery of the global manufacturing economy."
In addition, uncertainty related to energy supply has increased due to the suspension of Russian energy supplies, and with both final demand and material procurement heavily dependent on China, China-related risks are also rising, making Germany the only G7 country expected to experience negative growth this year.
The transition of the European Central Bank (ECB) from a long period of accommodative monetary policy to tightening has significantly weakened the private sector's spending capacity, and despite growing recession concerns, the government's reduction of fiscal spending is also expected to act as a downward factor.
The International Finance Center stated, "There is a high possibility that some global conditions such as the suspension of Russian energy supplies, the climate crisis, and the transition of China's growth model will become entrenched, and internal factors in Germany such as population aging and lack of investment are unlikely to improve in the short term, making it difficult for the German economy to recover the high growth rates of the past."
It was also suggested that Germany's sluggishness may limit upward pressure on the euro. The report added, "The Eurozone as a whole is significantly affected by the Russia-Ukraine war compared to the US, vulnerable to China's economic slowdown, has a large manufacturing sector, lags in innovation investment, and is highly exposed to interest rate hike shocks due to short fixed-rate periods or a high proportion of variable-rate mortgage loans."
This situation in Germany has significant structural implications for South Korea as well. According to the Bank of Korea's International Economic Department's report 'Background and Implications of Recent German Economic Sluggishness,' the structural vulnerabilities of the German economy are an industrial structure with a large manufacturing sector but weak competitiveness in advanced IT sectors, and a labor market structure with a high proportion of elderly and low-skilled workers.
The Bank of Korea emphasized, "The recent trend of increasing labor supply among the elderly in South Korea resembles the German labor market situation since the mid-2000s," adding, "It is necessary to utilize the solid base of highly skilled workers to enhance productivity in advanced industries, take industrial diversification and green transition as opportunities to expand growth potential, and prepare policy measures such as the inflow of foreign workers to address labor supply shortages due to aging."
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