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German GDP forecast downgraded but demand for IT professionals stays high

“Germany isn’t the sick man of Europe, but a tired man in need of a ‘good cup of coffee of structural reforms,” said German Finance Minister Christian Lindner at the World Economic Forum in January 2024. A month later, German Economy Minister Robert Habeck announced that its economy was in ‘troubled waters,’ slashing the economic growth forecasts for this year from 1.3% down to just 0.2%.

Given that the economy shrank by 0.3% in the last quarter of 2023 and the German Central Bank (the Bundesbank) predicted that stress factors would lead to a decline in the first quarter of 2024, Germany could enter a technical recession.

“Consumer restraint, high interest rates and price increases, the government’s austerity measures, and the weak global economy are currently dampening the economy in Germany and leading to another winter recession,” said the ifo Institute’s Timo Wollmershaeuser.

A recent survey by the ifo Institute noted that companies in Germany are also looking to hire fewer staff. It was noted that manufacturing, trade, and construction are the most impacted employment sectors.

“The construction sector is in a severe recession, especially for the housing market. In manufacturing, the incoming orders are weak. More than 40% are complaining about the lack of demand. In trade, we have a weak development; consumers are rather hesitant to spend money. Therefore, in all three sectors, the willingness to hire additional staff is low,” said Klaus Wohlrabe, senior economist at the ifo Institute.

Should Indian professionals worry?

In 2022, Germany granted the most work visas to Indians, with 17,379 approved visas. In February 2023, when German Chancellor Olaf Scholz visited India, he stressed the need to simplify issuing visas to Indian professionals, especially in the IT sector.

“We will need many skilled workers to meet the demand for software development in Germany,” Mr. Scholz said then. His government has since passed the revised Skilled Immigration Act, which lowers the entry barriers to Germany, such as annual salary limits and the requirement to know the German language.

Given the current economic situation in Germany, it begs the question of whether skilled IT workers from India will find it difficult to immigrate to Germany.

Sonali Chowdhry, a trade economist at DIW Berlin, noted that 2023 had been a difficult year for tech employees due to a high number of layoffs and a deceleration in the hiring process.

“Germany continues to face a critical shortage of skilled IT professionals, for instance, in software development, and is gradually reforming its immigration policies to accommodate them. This will limit the downsides for Indian IT workers, even amidst the economic stagnation,” said Ms. Chowdhry.

The ifo Institute’s survey also didn’t note much impact on service sector hiring.

Mr. Wohlrabe states, “In the service sector, some branches are continuously looking for new team members. This includes especially all IT-related services (broadly digital branches).”

Impact on India-Germany Trade

While there is no official government data on Indo-German trade in services, merchandise trading volumes are available. In the calendar year 2023, India’s exports to Germany were worth U.S. $9.7 billion, with organic chemicals ($834 million), apparel ($795 million), and articles of iron and steel ($447 million) being the top exports.

India’s exports to Germany have hovered around the $8 billion to $9 billion mark in the last five years, according to Ajay Srivastava, founder of the Global Trade Research Initiative.

“The trade between India and Germany is diverse and has been stable over the last five years. I don’t see that changing much. Moreover, 70% of the exports are industrial,” said Mr. Srivastava, noting that a surprising trend was the rise in smartphone exports over the years. In CY 2023, India exported $311 million worth of smartphones to Germany.

According to the International Monetary Fund’s Economic Outlook, India’s projected GDP growth for 2024 is 6.5% (the highest among emerging economies), compared to 0.5% for Germany (the lowest among advanced economies).

Mr. Wohlrabe finds the lack of demand on the domestic and international fronts a major issue. “As an export nation, this is problematic. Another issue is the high level of uncertainty among firms and consumers. Firms are reducing or postponing investments due to this uncertainty. Consumers are hesitant due to the recent inflation experience. They would rather save money than spend it,” he said.

On the limited consumer spending in Germany due to higher inflation, Mr. Srivastava said: “If we have to dig deeper into the apparel trade, India doesn’t export many fast-fashion items to Germany. We export essentials such as cotton. When consumer spending is impacted, expenses such as fast fashion are the first to be hit.”

According to Ms. Chowdhry, the increasingly cautious business and consumer sentiment will likely curtail import purchases from India and could also impact investment flows. “To sustain growth in bilateral trade and maintain this economic partnership over the long term, both countries should actively explore deeper cooperation in emerging sectors such as renewable energies, digital infrastructure, and healthcare,” she said.

As per Mr. Srivastava, the traders have other pressing concerns besides Germany’s economic situation. “From my conversations with the exporters, they are more worried about on-ground disruptions, such as the tensions along the Red Sea trade route, that can impact or even halt their shipments.”

In addition to external factors, Germany has also been dealing with a lot of internal strife, such as the unending strikes.

Not a week has passed since the start of 2024 when one hasn’t read about some strike or another. The massive farmer protests that took place in the first weeks of January were then followed by strikes by public transport sectors (including trains, trams, and buses) and strikes called by airport ground staff that led to a suspension of flights across Germany.

The last strikes took place on March 7 and 8. Germany’s second-largest trade union, Verdi, has called for Lufthansa ground staff to strike and is negotiating for its 25,000 members to get higher wages to compensate for rising inflation. German train drivers went on a strike on March 7, calling for fewer working hours. More strikes are expected in the near future.

(Nimish Sawant is an independent journalist based in Berlin)

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