New German Angst?

Contractions in the German economy are as rare as they come. Only now, the latest slowing has stirred concern it won’t be a fluke for this EU stalwart.

In the second quarter, the country’s gross national product dropped 0.1%, only the third quarterly contraction in the last five years. Coming off a year of economic uneasiness on the continent and beyond, the results were enough to raise some serious recession fears. Indeed, one analyst is now declaring that Germany’s “golden decade” is over.

But not everyone sees gloom ahead. Many experts say it could be just enough of a warning sign to trigger new, if successful, disruptions at firms. As Werner Penk, Korn Ferry’s Germany-based president of technology, sees it, German businesses should take the dip as an opportunity for change. “The good news is that talented people are there, ready and waiting,” he says. “But an overly conservative approach is hindering them.”

To be sure, the latest dip doesn’t compare to the devastating 6.9% drop during the depths of the Great Recession a decade ago. Eric Wenzel, a Korn Ferry senior client partner and head of the company’s German Assessment and Succession practice, doesn’t believe leaders should be anxious over small drops. “It doesn’t sound like that big of a number.” He also notes the German government has enough cushion in its budget to help the economy if needed.

Much of what is causing the slowdown has nothing to do with Germany. Wenzel, for one, points to the ongoing US-China trade war, which is having a knock-on effect on Germany’s manufacturing because such industries are generally connected across borders. Others also cite Brexit, which has affected Germany’s exports, and even an economic slowdown in Italy, which has long been a major customer for many German companies.

Instead of being anxious over a potentially mild recession, Wenzel says leaders can use the slowdown as a chance for leaders to inspire their businesses to be more innovative. One area where Germany was at the cutting edge for decades was in the car business. However, these days the industry is to some extent playing catch-up on electric vehicles. The country lacks extensive infrastructure for charging the vehicles. “They need to respond and take the lead,” Wenzel says. The US-China trade war may open up some possibilities for the auto industry and other manufacturers.

Some innovative firms, meanwhile, have bucked any slowdown. For instance, Penk notes that Hamburg Energy is a clear-cut leader in clean energy. “It’s a relatively small company, but it has change agents,” he says. Likewise, Adidas, a company well-known for its iconic sports apparel, has remade itself into a life-sciences company. In the job for just three years, CEO Kasper Rørsted has repositioned Adidas as a far more global brand and embraced new wearable technology. “It’s not just sportswear,” says Penk.

Authors

  • Eric Wenzel

    Senior Client Partner

    Bio >
  • Werner Penk

    President, Technology

    Bio >