Europe’s economic engine, political hegemon, and home to the most powerful woman on the planet. Generally, just the best country out there. Germany tops many rankings, but this dominance isn’t absolute, and what’s more it isn’t always a good thing.
“The biggest danger for Germany is self-satisfaction,” says Arturo Bris, a professor at IMD Business School in Switzerland. Every year, IMD ranks the most competitive global economies. For the second year running, the list is a rare bit of bad news for the northern European powerhouse.
In the latest rankings, Germany dropped out of IMD’s top 10 most competitive economies. It has slid from sixth in 2014 to eighth last year to 12th today. “A diminished assessment of Germany’s government and the economy’s performance were the main reasons for the drop,” Bris says.
The rankings are based on a global survey of 5,400 managers assessing 350 criteria—a mix of hard and soft data—for 61 countries. It considers at four factors seen as important for countries as prospective business locations: economic performance, business efficiency, government efficiency, and infrastructure.
“Germany has declined in terms of rankings across infrastructure indicators like tech cooperation, knowledge transfer between companies, and logistics management,” says Christos Cabolis, chief economist at the IMD’s World Competitive Center. “These drops can be interpreted as lack of entrepreneurial spirit.”
Although Germany scores well in terms of its overall economic strength, it lags in 19th place in terms of its “government efficiency,” which includes public finances, tax policies, inflation, and the corporate legal framework.
Sebastian Dullien, a senior policy fellow at the European Council on Foreign Relations, says it’s questionable how valuable these indicators are, as they add things like GDP together with, for example, how easy it is to do business.
“No one is going to really base a business decision on whether to set up a company on the indicator—you look at the decision based on your specific business,” Dullien says.
He added that Germany does, however, have run-down infrastructure after a long stretch of low public investment. ”This becomes a problem for businesses as well.”