Sunday, readers.

The German elections are just two weeks. Thick clouds on the largest economy in Europe. High energy costs after Russia invaded Ukraine, the increasing competition from China and now the threat of the American customs tariff has started economic activity. Germany recorded a negative growth for two consecutive years. The nation regains sadness as “the sick man in Europe”.

This makes Germany the perfect candidate for free lunch in anti -stones analysis. This week, I looked at the long -term optimistic situation of the German economy. This is what I found.

First, the reports of the industrial decline in Germany were exaggerated. German manufacturing, in fact, amazingly flexible.

The energy crisis and the disorder of the supply chain after the Covid-19 struck the German industry. Heavy energy industries such as chemicals and contracted minerals. but , International Monetary Fund notesOther sectors that were adapted by “switching into higher value products and using fewer intermediate inputs.” Electric vehicle exports increased by 60 percent in 2023. Electronic and visual production also increased, as well as aircraft machines.

The graph below shows that although German manufacturing production is low, the added value remained fixed.

In fact, Germany’s long -term experience in engineering can be reused towards the new growth sectors (at home and abroad). Although exports to the United States and China may be affected by the increasing commercial tensions, the nation remains the dominant industrial power in Europe.

The demand for defense equipment and green technologies rises across the continent. Germany has a specialty in both, as Europe leads to patent in green technology (and in general). It is also ranked first among developed countries, much higher than the United States and China, at the International Monetary Fund Index for the Relative Monument in Green Goods. This includes highly efficient power plants, smart network design and Technology shipping.

After that, the enormous strengths of the German industry are emphasized by performing the stock market. Although depression was listed around its economy, DAX surpassed all other major indicators – including S&P 500 – last year.

the I mentioned ft In December, the Seven Pax of Seven Pax: SAP, Siemens, Siemens Energy, Allianz, Deutsche Telekom, Rheinmetall and Munich Re. Their focus on global markets is isolated from local economic weakness.

Although the market concentration is a source of anxiety, these companies are spread through energy, communications and insurance-unlike the S&P 500, which are shown by modern fluctuations, are vulnerable to artificial intelligence-based corrections.

If these companies remain strong, there is an attractive opportunity for investors. Goldman Sachs notes that the total German stock market is trading with a historical discount for the United States, even when it is modified to form a sector.

But the strength of German companies exceeds these large groups. It is dominated by its industry by Mittelstand. These small and medium-sized private companies are not similar to the smaller companies in the United States and the United Kingdom- they are more specialized and innovative, and are often described by “hidden heroes”.

It includes Zarm Technik (which is manufactured by devices that spin satellites in space); Patient (sensitive manufacturer); Kaefer Assoliertechnik (which makes insulation technology); And König & Meyer (music maker).

The graph below shows that the German industry is in a good position to create value, as it is very competitive in a number of growth sectors. (PResearchers In BCG and the German Economic Institute, a classification methodology has developed with sub -indicators for competitiveness and the global market attractiveness, such as the global market share, the number of patents, market growth, competition intensity and technology maturity.)

The German industry generates significant revenues by selling goods and services abroad, which exposes it to transformations in demand and political geography.

But there are more opportunities for sale to Europe, especially in defense and green technology (especially with the intensification of commercial wars and the United States withdraws from the agenda of renewable energy sources). The local economic environment can also provide the opposite winds in the medium term.

German elections are an opportunity to modernize. The following counselor, Fredchich Mirz, the leader of the Christian Democratic Union, will follow some structural reforms. The coalition policy can reduce many of its plans.

However, regardless of the formation of the German government, the semi -full glass perspective is that even marginal improvements in politics can enhance productivity growth (and support the light movement).

First, constitutionally dedicated “debt brake” – which requires the structural deficit to stay at 0.35 percent of GDP – do not need public investment. The share of capital spending in the economy of Germany is one of the lowest rates in the Organization for Economic Cooperation and Development.

More than half From the Germans support the repair of borrowing boundaries. In fact, debt brakes mean that the country has a financial chamber to raise spending on productive investments on its way to the railway infrastructure and railway.

With a decrease in public investment, until a little relief for debt brakes would make a noticeable difference (Estimates It indicates that Germany can also borrow 48 billion euros per year, or about 1.2 percent of GDP, without conflicting the European Union’s financial rules).

There is more low fruits. Reforms of recent permits have been fueled Rapid construction In renewable energy sources, which confirms the high returns to reduce bureaucracy. In fact, it takes 120 days To obtain a work permit (more than twice the average Organization for Economic Cooperation and Development), according to the International Monetary Fund contract. Government digitization is also behind. For example, only 43 per cent It is services before filling out personal data on online models compared to the average European Union of 68 percent.

There are political obstacles to overcome them to increase investment, reduce time and cost the burden of red tape. Productivity gains will take some time. But even additional improvements on a low base will be to enhance growth.

One point for adhesion is migration. The population of the age of working quickly is shrinking, and Germany suffers from a number of skills. If immigration remains politically charged, RSKILING initiatives will need more investment. However, the country is taking steps in robots, which can help workers liberate higher value -added workers.

Germany’s last economic performance was undoubtedly frustrated. It is unlikely to turn soon. But his industrial retreat is exaggerated. The increasing headlines are hidden from the country’s inherent strengths in manufacturing and innovation.

Germany AG (and GMBH) has experience in converting in the growing sectors, including in green technology, defense and advanced manufacturing. The political class also woke up to the dependency of the old economic model. This gives hope, in time, Germany can ride the wave of creative destruction, especially if politicians can play a empowerment role.

ideas? refute? Send me a message in Freeelunch@ft.com Or on x @Teapperikh90.

Food to think

As artificial intelligence improves, humans need to think about their relative advantage over knowledge machines. This study Driving in character features probably to technological change and pay economic returns.