ECB Executive Board member Isabel Schnabel said Germany’s long-standing export-led growth model can no longer sustain the economy in an increasingly fragmented global landscape. Speaking at the Bank of Lithuania’s Economics Conference in Vilnius on Friday, Schnabel identified chronic weakness in domestic demand—not eroding export competitiveness—as the root cause of Germany’s extended stagnation. She noted that real GDP per capita declined 0.5% between 2019 and 2024. Although protectionism, high energy costs, and competition from China present significant headwinds, Schnabel argued that Germany’s export performance has largely tracked broader global trends rather than experiencing a singular collapse. “In a more fragmented world, its export-driven business model is no longer viable,” she stated.
She traced the deeper structural problem to decades of tepid household consumption and investment. Real private spending has expanded by less than 1% per year on average since 1999, partly due to early-2000s reforms that intentionally held back real wage growth. Those policies bolstered corporate profits and savings, fueling persistent current account surpluses, while weak domestic investment caused much of that capital to be deployed overseas. Even with sizeable trade surpluses, Germany’s economy grew at an average annual rate of just 1.4% between 1999 and 2019. “The key shortfall is not a collapse in external demand or a unique deterioration in competitiveness,” Schnabel said. “Rather, it is sustained weakness in domestic demand that leaves Germany’s economy more vulnerable than others to shocks abroad.”
Looking ahead, Schnabel welcomed Germany’s major fiscal expansion, calling it “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—supported by structural reforms—could strengthen domestic demand and increase the economy’s productive capacity. These 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, building a more resilient economy amid fragmented global trade.