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Hello and welcome to World Business Report from the BBC World Service.
I'm Sam Fenwick. Today, we take a look at Germany's shifting economic landscape.
In an exclusive interview with the BBC, the leader of the world's third largest economy, the leader of the world's The leader of the central bank for the world's third largest economy shares his thoughts on how Germany and the European Union can navigate this era of extraordinary economic challenges.
Now we are in a world with terrorists so we could expect maybe a recession for this year if the terrorists are really coming.
So it is a challenging situation.
And in a rapidly escalating trade dispute Donald Trump has today threatened to impose a staggering 200 % tariff on EU alcoholic imports.
We'll also be talking about crypto in a record breaking move Abu Dhabi's state owned investment firm MGX has invested $2 billion into Binance and we'll hear how solar power is spreading across Africa but at a cost.
That's all coming up in the next 30 minutes.
So let's get started.
It's the shaky time for the world's third largest economy Germany, which has been experiencing stagnant growth for five years.
High energy prices slow down in demand from China and fierce competition in manufacturing are among the factors putting pressure on Europe's largest economy.
And because it's an export -driven economy it could face significant challenges from Donald Trump's America -first policy and the introduction of tariffs.
In a moment, we'll speak to Geraldine Dani Knidlik, who is the Head of Forecasting at Berlin -based Economic Institute, the DAW, and Simon Schulz from the German Association of Automotive Industry, the VDA, about how positive they're feeling about the German economy.
But first, let's hear from Dr. Joachim Nagal.
He's the President of Deutscher Bundesbank it's the central bank of Germany and he's been speaking to my colleague Ed Butler I think we are living in a stagnating economy if you take the numbers the forecast of my institution the Deutsche Bundesbank is for this year economic growth by around 0 .2 % so this is not good and for the next year it's maybe a little bit better but this is without service now we are in a world with terrorists.
So we could expect maybe a recession for this year, if the terrorists are really coming.
So it is a challenging situation, but we shouldn't forget where this all started.
It started three years ago with this unprovoked war of aggression of the Russians against Ukraine.
So we did well by overcoming the energy crisis in 2022.
But now we are in a situation where we have to do our homework, and yes, it's right.
So the timing for this is definitely, this is not a good timing.
You say that it started with the Ukraine War.
You could say it started with COVID.
It started with a lot of things, didn't it?
The global inflation crisis.
There are those German politicians themselves who say that Germany is especially vulnerable to what has happened.
Not just because of the rising cost of fuel driven by the Ukraine war, but also because Germany is built on an export model.
And that export model is not fit for purpose in the current world we live in.
Yes, I think this is true.
I think this was one of the strengths of the term economy over decades that we are an export oriented country.
And some said that we are the sick man of Europe.
This is definitely not the case.
We have strong economic basis.
We have strong small and medium -size companies, but nevertheless, when you are exposed to an export oriented model, you are more exposed in a situation when terrorists are going up, when there are so many uncertainties, so many unknowns, but I'm really confident that we could overcome all this, and we are much better off.
This is my belief and my understanding over the next couple of years, and the upcoming new government, they understood lessons from the past and they will do their homework and then I'm really confident that Germany is doing better in the next years.
That was Dr. Joachim Nagal and we'll hear a little bit more from him in just a moment.
Let's go to our guests.
We've got Geraldine with us, head of forecasting at the Berlin -based economic institute, the D .I .W.
and Simon Schulz, who represents German car makers.
I mean, First of all, how worried are you about a German recession?
As worried there as your president of the central bank?
Let's go to Geraldine first on that, please.
Hello from Berlin. Thanks.
Of course, I'm worried.
We've seen that the German economy has stagnated now for two years.
We know that this is not only a trough in the sense of a business cycle or temporary lower demand, but we know that the German economy has structural changes going on because of higher international competition.
Because we have demographic change, our population is getting older.
We seek skilled workers.
We have a lack of skilled workers.
And because we expect energy prices to be higher in the future due to our emission goals.
So there's a lot of structural change in the German economy going on, but I would agree to Joachim Nager, that I'm confident that the German economy can overcome these structural changes in the future.
But in my opinion, there needs to be something done about politics.
OK. Well Simon, Geraldine there talking about the kind of future.
Immediately, the economy is dealing with these tariffs that keep rolling in from America and the retaliatory tariffs tariffs from the EU, and I suppose the car industry is right in the middle of that.
Hello, and thanks for having me on the show and yeah, of course.
We're very export -oriented.
That's a true fact.
Nevertheless, when it comes to the US, it's also a good thing to look at the local numbers.
We create almost 150 ,000 jobs locally in the US.
BMW, for example, Now we've had this biggest plant there.
We produce almost 900 thousand cars in the US and half of them go into the export.
So the thing is, and you already can notice it in a lot of Trump's measurements and reactions in the last weeks, if he notices that the effects of his tariffs will harm its own industry and will raise inflation, which is already happening in signs that are coming.
I think we are not in the worst position to negotiate.
Nevertheless, this all shows something and there it comes all together, because we're also talking about the German economical situation.
Germany, and with it, also Europe, has to become economically way stronger to have a voice that is heard in the world.
And the reforms are very necessary.
we have a new EU commission that says now that competitiveness needs to be the most important thing and the new German government kind of says the same.
I think our economy in general, our companies are very strong, but the location side and the competitiveness of Germany, especially but also of Europe has suffered a lot in the last years and we don't need small measurements, we need a really big deal right now to get but this turned around.
Let's hear a little bit more now from Dr. Uakim Nagal, because he's also been talking about a new economic strategy, which surprisingly, the government is planning to loosen its traditionally strict constitutional debt limits.
This change could unlock around a trillion euros in spending, targeting crucial areas like defence and infrastructure.
Now this is a bold shift for a country long known for its cautious approach to borrowing.
We are living in extraordinary times.
I think nobody can say this is not the case.
So I believe it could be that you can then think about extraordinary measures and I guess this is the case.
What I would like to say is that fiscal policy in a situation like this can lay the foundation for economic growth.
But it's only one instrument and some structural issues we should have to solve here in Germany.
If both things are coming together and there is at the end a kind of a mild revision of the current debt break, then I believe this is decent policy.
And this is what I expect from the upcoming government doing homework, solve things, being powerful.
And now we have to bring the new policy into action.
We were put in the past by only analyzing the whole situation, but now it's really of utmost importance to get into the driver seat.
Yeah, but you're calling it extraordinary times.
I guess every Government likes to define the challenges it faces as extraordinary.
The problem is, once you lift a debt break, how do you get that back again?
How does the next Government decide that debt is OK, or and then basically Germany is faced with the same debt levels that other heavily indebted Western countries are facing now.
So maybe let me slightly disagree I believe that this time is really, makes a difference compared to like years before.
Yes, the pandemic years were complicated, no doubt about it.
But this time, we're in a situation where, where where I see the whole world is confronted with tectonic changes.
And so I believe that this is really something that makes the current situation very different.
Because a debt break is important, it's a stability anchor, nothing else to give this stability signal to the market.
And so I believe that if the new government is looking into our proposal and others that some other proposals going in a rather similar direction, then I believe then they are on a footpath, and as I said the upcoming government what I see is that they are showing this responsibility and so I hope that they will succeed.
Are you optimistic?
I'm by nature a very optimistic person but I guess many of us now have maybe the feeling that the pain is growing and when you are confronted with such a situation then you have to change the prescription.
And this is, I believe, happening now.
Simon, you were just saying about how Europe kind of needs to come together.
Is this what needs to happen for Germany to be able to kind of like boost some spending within its economy, to raise this debt ceiling?
Yes and no. The thing is this is probably necessary looking at the challenging times, but if this is something that will prevent the government and I mean not only the government in Germany and in Berlin but also in Brussels after all to really go to do structural reforms this won't work.
I mean yes we can invest money and we need to invest in infrastructure and also defense but if we don't do structural reform if we don't make if energy doesn't get way cheaper three to four times more expensive here than in the U .S.
or China. If we don't get way faster with planning processes, if we don't get all the bureaucracy, the intensity of bureaucracy down, all of this won't help because other economies in this world looking at competitiveness are ahead of us.
They are way less complicated with all of these things.
So this all will only work when it's accompanied by structural reforms and honestly, when it comes to that in Berlin and in Brussels, I see first signals but not more than that for now.
Well let's talk to Geraldine, what do you think?
Does it worry you? Where do you stop?
The dangers of lifting a debt ceiling is where you stop with it.
Well, I first have to agree to Simon.
There's definitely a tradeoff between having more money for public spending and having the pressure to do a structural reforms and to reform in general, or look at the consumption side of the public government.
And it's true that bureaucracy and regulation is overwhelming for businesses in Germany.
At the same time, one factor for competitiveness is also analog and digital infrastructure.
Because Germany has not done a lot of public investment in the last 30 years, we are now facing a huge deterioration of our analog infrastructure.
For example, looking at bridges falling down and so on and so forth.
And there are studies around that say Germany needs at least 600 billion euros in order just to maintain its infrastructure.
And I think that is some amount of money that we need.
So I guess there is this trade off, but what will not help is the proposal of the Bundesbank because that will only release around 200 billion euros.
And that will not be enough in order to keep German infrastructure competitive.
Geraldine Danny Knedlik.
Thank you very much for joining us and Simon Schultz as well.
Geraldine there from the D .I .W.
which is an economic institute in Berlin, and Simon from the VDA, which is the German automotive industry.
Well, while that's all happening in Germany, in France, the economic prospects seem to have hit a bit of a rough patch.
the global trade war expected to impact is adding pressure on its already sluggish start to the year.
The Bank of France has revised its 2025 growth forecast, lowering it to 0 .7 % from an earlier prediction of 0 .9 % which they made in December.
And this marks the slowest annual growth for the country since the pandemic in 2019.
Let's talk to Susanna Streeter who is Head of Money and Market market at Hargreaves Lansdowne.
So, Germany Central Bank warning of a recession, France lowering GDP forecast, all this is happening because of what's going on with the Trump -Tarriff war.
How are investors feeling about all of this?
Well, obviously, we've seen a little bit of volatility on European markets.
The stock 600, the DAX down slightly, there is some concern, of course, about the effects of this latest retaliation threatened from President Trump after the EU imposed tit for tariffs.
But actually when you look at just how confident investors are, well, they are much less confident in the North American market.
Confidence has plunged 17%, whereas confidence has risen for the European market by 47%, albeit from a much lower base.
Because of course, American Wall Street really has been the much -loved area of investment in recent years.
But that certainly is changing.
So even though we've had these discussions about how Germany's economy and France's economy would still be struggling, there does appear to be a change in sentiment as far as investors are concerned.
Even with a 200 % tariff threat on alcoholic drinks like wine and Cognac?
Well, at the moment, if you look at what's happening on financial markets, really, they've taken these latest threats in their stride.
We have had, of course, lots of rhetoric and fire exchanges from President Trump over recent weeks.
It's very difficult to see exactly how this is going to play out.
But there does seem to be more concerned about the effect on Wall Street right now, rather than necessarily what's going to happen in Europe.
And I think partly this is because of this pledge by governments to really increase spending on infrastructure and particularly defence.
Susannah Streeter from Hall Grief, London.
Thank you very, very much.
This is Jenny Garth from I Do Part 2.
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For that you're listening to World Business Report from the BBC World Service with me Sam Fenwick.
Now let's turn our attention to Africa's solar power industry, which is poised for rapid growth this year as installations are projected to more than double.
And that's according to a report by the global solar council, which has identified three key drivers behind this surge.
One is declining technology costs to his supportive government policies and three an increasing demand for reliable energy.
So this surge comes as the continent looks for cleaner, cheaper alternatives to fossil fuels and aims to expand access to electricity.
Let's talk to Sonia Dunlop now, she's the CEO of the Global Solar Council, she joins us from Nairobi.
Thank you very much, Sonia, for joining us today.
So there seems to be an appetite for solar power but but there's still a large cost associated to it.
Why is that? So, thank you for having me.
And actually, do you know, the cost of solar has come down 90 % over the last 10 -15 years.
And in many markets across Africa and indeed across the world, we're seeing that solar is actually not just competitive with other sources of generating electricity, but actually cheaper than that.
And we now, as the solar PV industry, energy are generating the cheapest electricity ever seen in the history of electricity.
And are there countries which are leading the solar expansion more than others?
Are there ones that are seeing more growth than others?
Yes, certainly. Well, if you look at it globally, of course China, India, Europe, the United States are all doing well.
But here in Africa, where I am today in Nairobi, it's remarkable how South Africa, Egypt, but also Nigeria, Ghana, Burkina Faso are all doing really well and installing solar and battery storage in order to meet their energy needs.
And that's both in large solar farms, in rooftop solar on businesses, on homes, and also in off -grid solar in parts of Africa that don't have any access to electricity at all.
Your report does also highlight though that it is seven times more expensive to build solar in Africa than it is in developed countries.
Why are the costs so much higher?
That's right, the cost of financing a typical solar installation, a typical solar farm in Africa is seven times higher.
So banks are for a seven times higher cost of capital than in other parts of the world.
And that's really because there are perceived risks of building this in Africa.
You've got to remember all the costs are up front and often we are selling our power to local utilities, that banks are often worried about whether or not they're going to pay for that power in the long term.
Remembering this as a technology that once you've installed it, it sits there for 25 years generating power.
And so you need to be sure that you're going to get your money back over those 20 years.
And that's why the cost of financing these installations can still be so high.
And that's why we as the Global Solar Council have created the international solar finance group to fix that.
What about sort of the next stage I suppose at kind of creating an electricity grid so that this solar power can be moved around a bit more easily and maybe bring some of those costs down?
Absolutely so we need to be building that grid infrastructure to be able to share renewable power, share solar and other renewables like wind, like hydro from one parts of southern Africa to another for one part of north Africa to another to help sort of even out the variability.
But we also need to be thinking about off -grid solar and small -scale solar on people's rooms, on the rooms of businesses.
We know that already across the world 560 million people benefit from off -grid solar and storage.
Most of those are living here in Africa, where we've launched our report.
And we know that small businesses can be 27 % more productive, get 27 % more revenue if they also have solar and storage back up.
So, this is really about boosting green growth and boosting the access to electricity that this continent so badly needs.
Sonja Dunlop, thank you very much, Sonja, the global solar council or talking to us from Nairobi.
Well finally today there is some big news in the crypto world.
Abu Dhabi's MGX, a state -owned emirate investment firm, has announced a $2 billion investment in Binance.
Now this marks the first ever institutional backing for the world's largest crypto exchange and it also makes history as the largest crypto investment to be paid entirely in stable coins.
Well, let's talk now to Hadi Malhebe.
She is the co -founder and CEO of Angora Group, and she joins us from the UAE.
So how big a deal is this for Binance's future in the Middle East but also globally?
Hi, Sam. First of all, thank you for having me.
Second of all, I'm a he not a she, apologies.
That's okay. No problem.
Well, actually, this is huge news both for Binance and for the UAE.
For Binance, it really is a huge boost for its financial stability.
After they recently had to pay a fine of 4 .3 billion dollars in the U .S.
And to the UAE, it also strengthened its position as a leading destination or a leading hub for the digital asset and the Web Free ecosystem.
So we've been in this ecosystem since 2018 and since yesterday in Dubai there is nothing to talk about except this huge deal.
So we're also pretty excited about that.
Does it also go some way to legitimize crypto currency, which we've been talking about a lot since Donald Trump became president again back in January?
Yeah, absolutely. I mean, there is a huge shift right now globally, not only in the UAE but in the US.
The SEC has been very hostile towards the crypto space.
Right now, with the Trump administration, we're seeing a huge shift.
There recently has been talks, and that's actually been implemented about establishing a strategic reserve in the US on Bitcoin.
And now this institutional investment in Binance come to strengthen this move towards institutional money going into the crypto space.
So it does add legitimacy to the crypto world and it opens the door to much more investments that are going to pour in in the very near future, in my opinion.
I mean, is that partly why the UAE is attractive because of the regulatory challenges elsewhere?
Yeah, absolutely. The UAE has been leading in the regulatory space in crypto.
There are multiple regulatory agencies in the UAE, in Abu Dhabi, in Dubai, in Russell Khaimah, recently.
So, it is a philosophy that is being put into place.
The philosophy fee is we want to attract the best and the brightest in this new and emerging and what people are saying, future of money.
So we want them to come to UAE.
We want to attract these people.
We want them to create jobs here.
We want them to push the frontier from the UAE leading the UAE to the forefront of this industry.
And regulation is a huge part of that.
So they have been extremely proactive since the beginning in creating a regulatory framework that does just that.
I often talk to investors on the programmes on World Business Report and some of them are still, traditional investors, I think they describe themselves, they're still very concerned about crypto, about the volatility of crypto.
Is there that concern in the UAE, similar concerns do you think?
I mean, the concern is a legitimate concern.
Crypto is still extremely volatile.
However, it's like any new technology or any new industry.
It is still being tested, kind of.
Even though, if you want to be fair about it, you see, if you look at the history of Bitcoin, for example, the leading cryptocurrency out there, there is a sustained growth over time and it has sustained multiple very serious crashes.
I'm so sorry to stop you.
We must stop the programme there because we are out of time.
Hadit Maleb, thank you very much for joining us today on World Business Report.
The new year is here.
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From toothpaste to dish soap, chances are you've got Colgate -Palmolive products on your shopping list and in your house right now.
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And right now, you can get up to a $10 digital visa prepaid card when you buy up to $30 of Colgate -Palmolive products.
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Spend $20 on their products?
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