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  • Sonderveröffentlichung: B. Metzler seel. Sohn & Co. AG

The way out of the slump.

(Reading time: 4 - 8 minutes)

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The fact that Germany has been unable to keep up with the economic growth of other industrialised countries for several years now is worrying. "Nevertheless, we do not want to join the general swan song for our standard of living," says Carolin Schulze Palstring in the current Metzler Private Banking investment strategy and shows how significant increases in efficiency can not only put Germany's economy back on the path to growth. Because this analysis has what it takes to be truly encouraging, we would like to present it to you in abridged form.

The diagnosis is unsparing. Things are going downhill. In recent decades, potential growth, i.e. the growth rate that can be achieved when the available production factors are fully utilised, has fallen sharply in many developed economies. While the conditions were once in place for growth rates of between two and four per cent, this corridor is now only between 0.5 and two per cent. "We therefore asked ourselves whether the industrialised countries are doomed to stagnation or whether this trend can be reversed," explains Carolin Schulze Palstring, Head of Capital Market Analysis at Metzler Private Banking.

Basically, two questions are crucial for the long-term growth outlook of an economy: "How much work is being done?" and "How efficiently is work being done?".

The first question is quickly answered in view of demographic change. The total number of hours worked within an economy depends primarily on the size of the labour force. And this will continue to shrink year on year in many countries - not only in the industrialised nations, but also in China. According to Schulze Palstring, this trend is unlikely to be completely reversed, even by immigration or measures to increase the labour force participation rate "In addition, the mood is moving in a completely different direction: an unconditional basic income or the introduction of a four-day week are concepts that are becoming increasingly popular among parts of the population. In short: a shortage of labour meets a desire for more free time - an extremely unfavourable combination for the economy."

Even if fewer people are available on the labour market and the remaining workers are not prepared to work longer, the problem could still be solved by working more efficiently in the time available. So far, however, there have been unfavourable trends here too: Growth in real labour productivity (measured by output per hour worked) in developed economies has already been falling for decades. "The crucial question is therefore whether there is justified hope for a recovery in productivity. To anticipate this: Three key developments are currently creating favourable conditions for a real productivity boost in the medium term," says Schulze Palstring encouragingly.

Carolin Schulze Palstring

Firstly, according to Schulze Palstring, the process of so-called "creative destruction" is getting going again with the rise in interest rates. Zombie companies - unprofitable, highly indebted companies - survived for a long time mainly thanks to low interest rates and tied up resources such as staff and capital that were no longer available to healthy companies. Around one in ten listed and one in twenty private companies in industrialised countries now fall into this category. The renewed rise in interest rates gives reason to hope that market distortions will be at least partially corrected and that unprofitable companies will make way for healthy companies with functioning business models. "This process will be painful in the short term, as it will lead to a considerable increase in insolvencies and also to a temporary rise in unemployment. However, the reorganisation would have a positive effect on productivity in a few years and thus significantly increase our growth opportunities. Politicians would therefore be well advised not to save every company at any price," emphasises Schulze Palstring.

Metzler Private Banking sees the second prerequisite for a productivity boost in increasing corporate investment. After all, the better equipped employees are with training, machines and software, the more efficiently they can carry out their work. "Whether investments are worthwhile is in turn decided by weighing up the relative costs of labour and capital. Put simply, automation is only introduced when it is cheaper to buy a machine instead of hiring new workers," explains Schulze Palstring and concludes: "In view of staff shortages and massively rising wages, the incentive for companies to invest in automation is now growing."

Thirdly, a rethink is taking place in government circles in the wake of geopolitical developments. Government support for investments in key technologies is intended to stop the migration of industry and reduce international dependencies on critical raw materials. "In recent decades, the social priorities of industrialised countries have primarily been in the area of social spending. In relative terms, the government budget for social welfare has almost doubled since 1960, while the proportion of investment spending has more than halved. In the meantime, however, spending for productive purposes seems to be receiving more attention again," says Schulze Palstring.

Many countries are now pursuing a more active industrial policy again - above all the USA. With the help of a package of measures comprising the CHIPS Act, the Infrastructure Investment Act and the Inflation Reduction Act, more than one trillion US dollars are to be made available over the next ten years. The European Union has also launched funding programmes. "However, this alone will not be enough to create an attractive environment for corporate investment. In Germany in particular, the framework conditions for companies must also be improved - there is a considerable need, especially in terms of regulation, energy, taxes and labour, as a study by the Family Business Foundation shows."

Last but not least, the technologies for a quantum leap in productivity are also available. "Think of blockchain, robot-assisted process automation and, above all, generative artificial intelligence," says Schulze Palstring.

An initial indication of how big the effect could be through automation alone is provided by an estimate from management consultants McKinsey. According to this, the average annual productivity growth in the scenario of rapid adaptation (i.e. half of all current work processes are automated by 2030) could be just under 4 per cent in Germany by 2040. In the latest possible scenario (half of all work processes will be automated by 2060), productivity growth would be just over 1 per cent. "Both are extreme scenarios. Assuming that the truth lies somewhere in the middle, an average annual increase in productivity of 2 to 3 per cent would be conceivable - a level last seen in the early 1990s. That would be a real game changer and would help to cushion demographically induced losses in economic growth," analyses Carolin Schulze Palstring.

Of course, this will not happen overnight. "Even in the most optimistic scenario, it will probably take a few years for a strong effect on economic growth to materialise. Nevertheless, the chances of a real productivity boost are currently better than they have been for a long time. Those countries in which labour costs are high, market-based processes (e.g. company bankruptcies) are permitted and the location conditions are favourable are likely to benefit the most. If we as a society set the right course today in order to promote technological change and provide adequate support with regard to potential side effects, we could outline a future in which our prosperity is maintained or even grows," concludes Carolin Schulze Palstring.

Equity investors should also benefit. The topic of AI is highly relevant for companies in particular, as AI - or technologisation in the broadest sense - offers the potential to make a large number of work processes more efficient. Wherever data is analysed, content is created or customers are supported, there could be opportunities in future to speed up and even improve the quality of processes by using these new technologies. "The special thing about this is that applications can be found in virtually every industry - from the IT sector to energy and industrial companies to healthcare," states Schulze Palstring: "In short, AI has the potential to usher in a phase of far-reaching change comparable to the invention of the computer, the internet or the smartphone."

On the stock market this year, the share prices of companies that provide hardware and infrastructure for the use of artificial intelligence have risen in particular. "In future, the shares of companies that are not (yet) associated with this topic will also benefit," surmises Schulze Palstring, referring to a recent experiment by researchers at the Massachusetts Institute of Technology. "It shows that job-related writing tasks are solved more quickly with the help of artificial intelligence and that there are noticeable improvements in quality at the same time. In particular, the labour productivity of lower-performing participants increased dramatically in the experiment. In the future, it is precisely those companies whose output per employee is below average, whose personnel costs are high and where a large number of tasks can also be automated that could benefit from the use of artificial intelligence. After all, the potential to increase productivity is particularly high in this case. The introduction of AI into the corporate landscape should therefore also ensure winners in the second tier."

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