How and why the German economy is not shining
What really happens to the German economy? Pierluigi Mennitti's in-depth analysis from Berlin
Two pieces of news from the melting pot of the German economy which concern businesses and which highlight the contradictions of a certainly difficult moment, marked by the ruling of the German Constitutional Court on the 2023 and 2024 budgets which yesterday led to the government's adoption of the supplementary budget for 2023 sooner than expected.
The first comes from a study by the credit insurance company Allianz Trade, and reveals that the German economy is seeing more and more large bankruptcies, i.e. those involving companies with an annual turnover of at least 50 million euros. The second is based on two sources, a survey by the Federal Statistical Office and Cisco's AI Readiness Index, and concerns the relationship between businesses and innovation, in particular the use of artificial intelligence, which shows a German entrepreneurship is lagging behind its main global competitors.
A 2023 RECORD FOR GREAT FAILURES
The latest major insolvency in the German area is news these days and concerns the Signa real estate group, owned by the Austrian tycoon Rene Benko, whose German branch Signa Real Estate Management Germany has just filed an official bankruptcy petition at the Berlin district court Charlottenburg. But this is just the tip of the iceberg.
“Major bankruptcies have resurfaced this year and are approaching the highest level since 2020,” said Maxime Lemerle, insolvency expert at Allianz Trade and coordinator of the study. With 45 cases in the first nine months of 2023, the record level of 2020, the heaviest year of the pandemic, is no longer far off. For comparison, three years ago, 58 major failures were recorded in the entire year and 44 cases in the comparable period of the first nine months. Last year there were only 26 and in 2021 only 17.
Looking across different sectors of the economy, this year there has been a particularly high number of large bankruptcies in the (fashion) retail, hospital and mechanical engineering sectors. According to the Allianz Trade study, a total of twelve large textile and fashion retail companies, as well as six clinics, had gone bankrupt as of September 2023. “This corresponds to the situation described by the German Hospital Institute (Dki),” the researchers write, “according to which two-thirds of German clinics currently describe their financial situation as poor or very poor, especially medium-sized clinics.” There were also some major failures in mechanical engineering (five cases), the metal industry (four) and construction (three).
But it is the construction sector that has recorded the highest number of bankruptcies across all company sizes, followed by trade and service sector companies. “The retail sector has seen the strongest increase in the number of cases compared to the same period last year, but the hotel sector is also showing signs of weakness, even before the VAT increase,” the officials further note. authors of the study.
And the situation, even for trade and services, is not destined to change in the coming weeks. Milo Bogaerts, head of Allianz Trade for the German-speaking area, predicts a difficult period for retailers in the upcoming Christmas season. “Significantly fewer presents are likely to end up under the Christmas tree this year,” says Bogaerts, “food prices remain high despite the lower inflation rate, so consumers are saving on all other expenses, they go out less, buy fewer clothes and Christmas presents."
This is obviously not good news also for Italian export companies, for which Germany is among the most important outlet markets, but the same goes for German companies if you look at their main export markets, the Netherlands, United States and France, also hit by waves of bankruptcies. “German companies must therefore be doubly vigilant about impending snowball effects,” conclude the Allianz Trade researchers, “and pay attention to warning signs among their customers.”
DELAYS IN INNOVATION IN GERMAN COMPANIES
An analysis by the Federal Statistical Office of Wiesbaden ( Destatis ) and the Cisco Artificial Intelligence Index shed light on corporate innovation, in particular on the relationship between companies and technology and the introduction of artificial intelligence in mechanisms of business. The Destatis study reveals that in Germany only one in eight companies with more than ten employees uses artificial intelligence. The technologies are mainly used for accounting, financial control or management, for information security, for production or service processes and for the organization of administrative or business management processes.
Artificial intelligence is also often used to automate work processes or to help make decisions. Many companies use AI to analyze written language or evaluate texts, even if managers themselves complain about the lack of information and knowledge in the company on the use of AI technologies.
More than half of executives who are not yet adopting such technology tools (54%) are concerned about compatibility with existing devices or are unclear about the legal implications (51%). And among those reluctant to innovate, more than one in five companies (22%) do not believe the use of AI in their area of business makes sense.
For an international comparison, Cisco's AI Readiness Index, just published and based on interviews with 8,000 companies in 30 countries, comes to the rescue. While 14% of companies worldwide are ready to use artificial intelligence, in Germany the share is 7%. All investors are now aware that there will be no successful economy in the future without artificial intelligence – Cisco researchers write – and 61% of companies believe they have a maximum of one year before their business suffers.
“Companies around the world are trying to use AI for their business models, but there is a clear disparity in their ability to implement it,” said Christian Korff, member of the management board of Cisco Germany, “ and although Germany has some clusters of excellence, the threshold for widespread use of AI is still too high.”
There are some positive numbers in Cisco's research. In a European comparison, Germany shows good approaches in terms of strategy and talent and German companies are also comparatively well positioned internationally in terms of the AI skills of their employees.
However, the level of AI readiness of German companies in the infrastructure and data sector is less favourable. In the field of infrastructure, only 34% of German companies belong to the advanced categories, compared to an average of 47% globally. The situation is similar in the data sector: here, only 31% of the country's companies belong to advanced categories, compared to 43% globally. “Two-thirds of German companies say that their infrastructure is only scalable to a limited extent,” concludes Korff, “furthermore, they are not fully prepared for the significant increase in energy consumption due to AI and growing cybersecurity risks.”
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/come-e-perche-economia-tedesca-non-brilla/ on Tue, 28 Nov 2023 05:41:26 +0000.