ECB Executive Board member Isabel Schnabel warned that Germany’s traditional export-driven growth model is no longer viable in a fragmented global economy, arguing that persistent weakness in domestic demand, rather than simply deteriorating export competitiveness, is the fundamental problem behind the country’s prolonged stagnation. Speaking at the Bank of Lithuania’s Economics Conference in Vilnius on Friday, Schnabel noted that Germany’s real GDP per capita fell by 0.5% between 2019 and 2024. While protectionism, elevated energy costs and competition from China have created substantial challenges, she argued that Germany’s export performance has broadly followed global trends rather than suffering an exceptional collapse. “Especially in a more fragmented world, its export-driven business model is no longer viable,” she said.
Schnabel pointed to decades of subdued household spending and investment as the deeper structural weakness. Real private consumption has grown by less than 1% annually on average since 1999, partly reflecting reforms in the early 2000s that deliberately restrained real wage growth. These policies increased corporate profits and savings, contributing to persistent current account surpluses, while insufficient domestic investment meant much of the accumulated capital was deployed abroad. Despite substantial trade surpluses, Germany’s economy grew by only 1.4% annually on average between 1999 and 2019. “The key shortfall, therefore, is not a collapse in external demand or a unique deterioration in competitiveness,” Schnabel said. “Rather, it is a sustained weakness in domestic demand that makes Germany’s economy more prone than others to crises abroad.”
Looking ahead, Schnabel welcomed Germany’s major fiscal expansion, describing it as “the largest since the Second World War” and “a welcome step in the right direction.” She argued that well-targeted public investment in infrastructure, defence and digital transformation, accompanied by structural reforms, could strengthen domestic demand while raising the economy’s productive capacity. Such measures could also encourage German companies to invest more at home rather than expanding production abroad. The challenge is to shift Germany toward a more domestically supported growth model without sacrificing its industrial strengths, creating a more resilient economy in an environment of fragmented global trade.
