COVID-19: Which country will triumph in the post-pandemic world

The strengths Germany is showing make it the large economy most likely to thrive in the post-pandemic world.

The coronavirus is accelerating an inward turn among national economies that began with the global financial crisis of 2008. Governments are assuming more and more control over all aspects of economic life, running up public debts to keep growth alive and imposing new barriers to foreign trade and immigration. Only the virtual side of the world economy is booming, as people work, play and shop on the internet.

As the pandemic accelerates the pace of digitalisation and de-globalisation and drives up the world’s debts, Germany stands out for its relative lack of weakness to those challenges, and for a government prepared to handle them.

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Which nations will flourish in this reshaped economic landscape? Despite their tech dominance, the United States and China are running up too much debt and their governments have been widely criticised for mishandling the pandemic. Vietnam looks promising, an emerging export powerhouse with a government that has stopped the virus dead in its tracks. Russia also has an intriguing economy, because President Vladimir Putin has been working for years to seal off his country from foreign financial pressure, a defensive move that will prove increasingly valuable in a rapidly de-globalising world.

But the big winner is likely to be Germany. Its response to the pandemic has highlighted pre-existing strengths: efficient government, low debt, a reputation for industrial excellence that protects its exports even as global trade falls, and a growing capacity to create domestic tech companies in a world dominated by the American and Chinese internet giants.

While other countries worry that recent layoffs may become permanent, most German workers stayed on the payroll thanks to rapid expansion of the Kurzarbeit, a century-old government system that pays companies to retain employees on shortened hours through temporary crises. Germany was able to expand the Kurzarbeit — and much else in the way of social services — thanks to its famous frugality. During the long years when Merkel was pressing austerity on fellow European Union members, they lampooned her as a “Swabian housewife,” an archetype of the thrifty German who saves stale bread for dumplings. They aren’t laughing now.

The most generous rescue package in the world

Because Germany went into the pandemic with a government surplus, it could support its locked-down economy with direct payments to families, tax cuts, business loans and other aid amounting to 55 per cent of gross domestic product — the most generous rescue package in the world. It was also able and willing, for the first time, to provide emergency stimulus funds to neighbouring countries that have long complained that German stinginess hurt the entire continent. That move was shrewd as well as generous: Those countries are now better able to afford German exports than they would have been.

Yet Germany is not dropping its commitment to balanced budgets. Since much of this spending will be drawn from savings, Germany’s public debt is expected to rise, but only to 82 per cent of GDP — a much lighter debt burden than that of the United States and other highly developed countries, which are spending far less on economic rescue packages.

A more competitive tech power

Doubters say that Germany is now dangerously reliant on industrial exports, particularly to China, in a time of slowing global trade. Well aware of these vulnerabilities, Germany is pushing to modernise its leading exporters, the big car companies. Through regulation and public shaming, it is pressuring the carmakers to turn from the still highly profitable combustion engine to the electric cars of the future. Stuttgart, home to Porsche and Mercedes-Benz, has banned older diesel motors within city limits.

Germany is also making a big if somewhat belated push to become a more competitive tech power. It devotes as much to research and development as the United States does (around 3 per cent of GDP) and has a long-term plan to create an entrepreneurial ecosystem akin to Silicon Valley, in which venture capitalists fuel promising start-ups. Germany’s technology industry is not without its setbacks, such as the recent and sudden collapse of the financial technology company Wirecard, which has raised questions about the vigilance of Germany’s financial regulator. But many of the industry’s first successes, copies of American online-shopping and food-delivery companies, are scaling up rapidly.

The German economic rescue plan includes $56 billion for start-ups that can digitise traditional industries, using artificial intelligence and other new technologies. Alongside France, Germany recently announced what its economics minister called a digital “moonshot,” which aims to create a European internet cloud to rival those of America and China

Germany is an ageing, conservative society, but critics who assume it is too slow to change have been proved wrong before. In the early 2000s, when Germany was dismissed as the proverbial “sick man of Europe,” it adopted labour market reforms that restored its status as the continent’s most stable economy. As the pandemic accelerates the pace of digitalisation and de-globalisation and drives up the world’s debts, Germany stands out for its relative lack of weakness to those challenges, and for a government prepared to handle them.

— Ruchir Sharma is the chief global strategist at Morgan Stanley Investment Management, the author, most recently, of “The Ten Rules of Successful Nations” and a contributing opinion writer for The New York Times.