The situation of the German economy isn't rosy at the moment, and the future is not looking good either.

German Economy Minister Robert Habeck told reporters in Berlin on Wednesday that the country's gross domestic product (GDP) is expected to shrink in 2024, meaning Europe's biggest economy will remain stuck in recession for the second consecutive year.

Unveiling the government's routine autumn growth forecast, Habeck announced an expected contraction of 0.2%, revising a more optimistic spring outlook of plus 0.3% of growth.

He noted, however, that Germany hasn't seen powerful growth since 2018 as the country's own structural problems have been compounded by wider global challenges. "In the middle of the crisis, Germany and Europe are squeezed between China and the United States, and must learn to assert themselves," he said. 

Data coming out of German businesses is likely to add to Habeck's woes as they show little reason to believe that the economy will recover any time soon.

In September, the business climate index compiled by the Munich-based ifo Institute saw its fourth consecutive decline, with ifo President Clemens Fuest saying the economy is "under increasing pressure." A majority of the company managers polled by ifo said they are dissatisfied with their current situation, and pessimistic about the outlook for their business.

The grim economic situation has led DZ Bank economist Christoph Swonke to describe Germany as the "new problem child of the eurozone."

Corporate vultures are circling

Amid falling sales and revenues, businesses often resort to stronger partners to help them overcome their difficulties.

Germany's national railway operator, Deutsche Bahn, is a recent case in point. The company has agreed to sell its profitable logistics subsidiary, Schenker, to its Danish rival DSV for about €14 billion ($15.3 billion). The money could provide a much-needed financial boost to the struggling state-owned company which is notorious for frequent delays.

Also hotly tipped for a foreign takeover is Commerzbank. Germany's second-largest private lender was bailed out by the German government after the 2008/2009 financial crisis, with the state still holding a 12% stake in the bank. Italian bank UniCredit has set its sights on a full takeover of Commerzbank, after clandestinely boosting its effective stake to 21% in September in what industry officials believe could become a so-called hostile takeover.

European Central Bank (ECB) President Christine Lagarde told the European Parliament on Monday (October 7) that cross-border banking mergers in Europe were "desirable" for European banks to be able to compete "at the scale, the depth and at the range" with other banks around the world.

In the meantime, more and more companies are leaving the country altogether, or at least investing more in their factories abroad than in their domestic bases in Germany. Chemical giant BASF, for example, is building a factory worth €10 billion in China. And mid-sized energy service provider Techem was sold by its Swiss owners to the US asset manager TPG.

'Companies don't have a passport'

The idea of foreign takeovers of German companies, even those partially owned by taxpayers, is viewed by economists as a natural process.

ING Bank Chief Economist Carsten Brzeski says that "economic stagnation and structural change naturally have consequences" for companies. "During such times, takeovers happen — whether domestically or from abroad," he told DW.

Stefan Kooths, director at the Kiel Institute for the World Economy (IfW), shares the view, adding that "companies don't have a passport." The prosperity of a country wouldn't depend on the nationality of its corporate owners, he told DW, but on the quality of its business environment.

Kooths says the recent slowdown of foreign direct investment (FDI) in Germany is "another sign of the country's weaknesses" as a business location. Countries that are more conducive to doing business attract foreign capital, he said, "while weak locations are avoided by investors."

Cutting red tape — the eternal German promise

Since the 1980s, successive German governments have promised to reduce the country's overburdening bureaucracy and foster investment here. After all those years, Kooths comes to the sobering conclusion that some "efforts have been made" by those governments, but mostly on paper without "consequential policy action."

Kooths lays the blame not only on the German government, but also on Brussels, where EU regulators create ever more red tape. "Especially with the EU's excessive reporting requirements — from EU taxonomy to supply chain regulations — market participants are increasingly getting in their own way."

ING's Carsten Brzeski agrees, suggesting the digitization of government bureaucracy as a first step along the way. "This would speed up the reduction of bureaucracy and also help address the shortage of skilled workers in many government agencies."

Green growth policies vs. government stimulus

While the EU is pushing hard for the implementation of its so-called Green Deal — with which it wants to become the world's first "climate-neutral bloc" by 2050 — Brzeski and Kooths doubt that prioritizing ecology will help the economy.

"Generally speaking, decarbonization cannot be a growth story," said Kooths, because "decarbonization policy suffers from too much interventionism."

And Brzeski adds that "green technologies have so far unlocked too little investment." Instead, he urges the government to address German companies' declining competitiveness, a process that's been going on for a decade, he said.

Kooths also thinks improving the competitiveness of German industry is key to returning to a growth path, but warned that growth cannot be "stimulated; it needs to be enabled."

Therefore, he is critical of government stimulus programs, saying the current German growth initiative is a "step in the right direction" but won't bring about a turnaround. For that to happen it would require "a fundamental shift away from interventionist industrial policy towards a market-based policy that strengthens the business environment," he said.

Kooths also categorically ruled out that the German government must intervene to prevent a potential selloff of German companies. Instead, he pointed to the laws of free markets, where companies are bound to become takeover targets "when their structures can no longer withstand competition."

This article has been updated with latest developments and comments following a news conference by Economy Minister Robert Habeck on Wednesday, October 9.

This article was originally written in German.