Industry experts warn that Germany's lag in innovation and structural transformation are straining its economic model. Yet, its core sectors and "hidden champions" still draw strong global investment interest.
BERLIN, Nov. 7 (Xinhua) -- The German federal government has revised its 2024 economic growth forecast downward from 0.3 percent to minus 0.2 percent, reflecting an economy slipping into recession amid a bleak outlook.
Some financially weakened German companies are now increasingly vulnerable to foreign takeovers, with the Financial Times describing the situation as "Corporate Germany is on sale."
Industry experts warn that Germany's lag in innovation and structural transformation is putting its industries and economic model under strain. Despite this, its core sectors and long-established "hidden champions" continue to attract significant global capital interest.
FOREIGN TAKEOVER SURGE
Foreign companies are accelerating their acquisitions of German firms against the backdrop of a recession, reported Berliner Zeitung. German companies are increasingly "relocating" operations abroad in search of better growth opportunities. Many are turning to foreign financing or selling assets to navigate tough economic conditions.
This year has seen a marked uptick in foreign acquisitions of German firms. In October, the Texas Pacific Group Capital acquired German energy management company Techem for approximately 6.7 billion euros (7.2 billion U.S. dollars). Earlier, Danish logistics giant DSV secured a 14-billion-euro (15.04 billion dollars) deal to purchase Deutsche Bahn's logistics unit Schenker.
According to London Stock Exchange Group data, foreign investors were involved in German M&A transactions totaling 111 billion dollars in the first nine months of this year, marking a 39-percent increase compared to the same period last year.
Although Germany remains a leader in manufacturing, slow progress in emerging technologies, digitalization, and electric vehicles is undermining its global competitiveness. Struggling to keep pace, some German companies are now turning to foreign capital to drive their transformation. This shift has prompted strategic acquisitions from foreign investors eager to leverage Germany's technological expertise and capitalize on its need for renewal.
Industry analysts noted that prolonged economic pressures are reshaping the German corporate landscape.
The rise in foreign acquisitions indicates that German firms are increasingly turning to external support to tackle structural challenges and intensifying global competition. Meanwhile, Germany's leadership in key sectors continues to make it an attractive target for international investors.
STRUCTURAL CHALLENGES
As Germany's economy stagnates, a wave of corporate sell-offs has intensified, reflecting a stock market-like panic. However, the root of the problem lies in deeper challenges facing the economy itself. In October, German Vice Chancellor and Economy Minister Robert Habeck forecast a further 0.2-percent contraction for the German economy in 2024, signaling a second consecutive year of recession. The IMF ranks Germany 39th out of 41 advanced economies for growth, underscoring its struggles.
Habeck pointed to significant structural challenges, including skilled labor shortages, underinvestment in infrastructure, and excessive bureaucracy, that continue to limit Germany's long-term growth potential.
A recent survey by the Association of German Chambers of Commerce and Industry (DIHK) found that many businesses hold a pessimistic view of the economy in the coming months, with one-third planning to scale back domestic investment. This figure has risen to 40 percent among industrial companies.
"German economy is faltering, and its competitive edge on both the European and global stages is eroding … signs of deindustrialization are becoming more evident," said Martin Wansleben, chief executive of the DIHK.
Zheng Chunrong, director of the German Studies Center at China's Tongji University, noted that German manufacturers have traditionally performed well, making them reluctant to pursue transformation. This conservatism has left Germany lagging behind in areas like electric vehicles and digitalization, with some companies now reliant on foreign partnerships to access advanced technologies.
Analysts suggested that German companies need to restore competitiveness through technological upgrades and strategic pivots. Germany's economic future will depend on its ability to blend traditional strengths with innovation, aided by international capital partnerships that can inject fresh momentum into growth.
DEEPENING CHINA-GERMANY COOPERATION
As Germany's economy slows, China has emerged as a vital growth engine for German companies. Bundesbank data show that German investment in China reached a record 7.3 billion euros (7.84 billion dollars) in the first half of 2024.
Some German multinationals have expanded investments in China this year: Volkswagen established its largest R&D center outside Germany in Hefei; BMW invested 20 billion yuan (2.79 billion dollars) to expand and upgrade its Shenyang plant; and Bayer announced a 600-million-yuan (83.62-million-dollar) investment in a new supply center in Qidong, Jiangsu.
Moreover, China's improved business environment continues to attract German firms. According to a 2023/24 Annual Business Confidence Survey by the German Chamber of Commerce in China, over half of German companies surveyed plan to increase investments in China over the next two years, with 91 percent expressing long-term commitment to the market.
"The Chinese market offers substantial growth potential for German companies, helping them solidify their global competitive edge," said Walter Doring, chairman of the Academy of German Hidden Champions.
Stefan Kooths, director at the Kiel Institute for the World Economy, noted that "companies don't have a passport." The prosperity of a country wouldn't depend on the nationality of its corporate owners, but on the quality of its business environment, he said.
"German companies' increased investment in China reflects an essential strategy to identify new growth areas," said Michael Borchmann, former head of the European and International Affairs Department of the federal German state of Hesse.
"Through partnerships with China, these companies gain access to advanced technology and market opportunities, bolstering their global competitiveness amid challenges. Deepening investment in China is a necessary step to counter current difficulties and secure long-term success and innovation," said Borchmann.■