Germany: AI boom versus growth drag – Deutsche Bank

Deutsche Bank’s Robin Winkler reviews Germany’s consensus outlook, where GDP growth is seen near 1% in 2027 before sliding towards 0% by 2030 as demographics weigh on potential growth. He argues this view assumes no meaningful AI-driven productivity gains for Germany, despite a strong global AI capex boom that currently underpins expectations for solid global and German growth.

AI scenarios challenge German growth path

"Germany's economic institutes are agreed on a strikingly neat outlook: GDP growth of around 1% in 2027, fading towards 0% by the end of the decade as demographics drag down potential growth. This projection may help keep reform pressure on the government, as a warning that the fiscal boost will eventually fizzle out without structural reforms. But reforms aside, we think this consensus is increasingly hard to square with an economic outlook dominated by AI, for better or worse."

"Start with the 1% growth expected in the near term. Alongside Germany's fiscal expansion, the cyclical recovery is premised on solid global growth, itself increasingly powered by the global AI capex boom. But the subsequent slowdown towards 0% assumes that productivity growth remains too weak to offset the accelerating demographic drag."

"Put together, the consensus implies a peculiar AI scenario: the technology is powerful enough to sustain a global investment and asset-price boom, but not powerful enough to deliver meaningful productivity gains in Germany by 2030. That is not impossible. Germany could be slow to capture the gains, or other headwinds could offset some of them."

"The alternative is that AI is simply not powerful enough to raise productivity growth noticeably. But then the global capex boom itself becomes more vulnerable next year. As new datacenters come onstream and onto balance sheets, investors will increasingly expect revenues commensurate with the scale of investment."

"In short, there are many plausible outcomes: productivity could be rising strongly by the end of the decade, or the investment bubble could burst next year, or both could happen. What is hard to imagine, however, is a happy continuation of today’s AI capex boom that ultimately produces no meaningful productivity gains at all."