Linas Jegelevičius
Germany, Europe’s largest economy, is experiencing an economic slowdown, with some analysts predicting a potential recession. This downturn is impacting economies across Europe, including Lithuania, which relies heavily on exports to Germany and integrates closely with German supply chains.
“Things are not bad yet, but the slowdown is tangible across the sectors. After Poland, Germany is Lithuania’s second-largest export destination. In some cases, we are seeing decreasing export volumes; in others, order cancellations,” Sigitas Gailiūnas, President of the Association of Lithuanian Chambers of Commerce, Industry and Crafts (LACCIC), told BNN.
The International Monetary Fund (IMF) recently downgraded its forecast for Germany, predicting a 0.2% economic contraction in 2024, a reversal from earlier growth expectations. For 2025, the IMF projects modest growth of 0.8%, a decrease from the previous forecast of 1.3%.
However, the picture behind the numbers is much gloomier.
Jolita Macelytė, communications manager of Achema, the Baltics’ largest fertilizer manufacturer, told BNN that the company is “tangibly feeling” the impact of Germany’s economic slowdown.
“Germany’s industrial competitiveness has been heavily affected by the loss of affordable Russian gas, a key factor in the production costs for many sectors, including fertilizers,” she emphasized, adding that, while European countries have largely ceased importing Russian gas, Russian fertilizers continue to flow into Europe.
“The imports to Europe have surged by six to eight times, and that has severely impacted sales for local producers, including German and European fertilizer manufacturers like Achema, whose sales to the German market have dropped by over 50% this year,” J. Macelytė said.
Germany is a crucial trading partner for Lithuania and the top foreign buyer of Lithuanian-origin goods. In 2022, exports of goods produced in Lithuania to Germany totaled 2.6 billion euros, making Germany a significant driver of Lithuania’s export economy. When including re-exported goods, Lithuania’s total exports to Germany amounted to 3.5 billion euros, according to data from Lithuania’s statistical office.
Several major German companies maintain significant operations in Lithuania, contributing to the country’s industrial and export landscape.
Continental, a prominent German automotive supplier, operates a large manufacturing facility in Kaunas, where it produces electronic components for vehicles. Other German companies with a substantial presence in Lithuania include Hella, another automotive parts manufacturer, and Rehau, which specializes in polymer-based products for the construction and automotive industries.
Šarūnas Valys, manager of the grain trade company Kauno Grūdai (Kaunas Grain), has said that a decline in Germany’s pork consumption and pig farming has affected his company’s exports.
Š. Valys told LRT.lt that this trend appears likely to continue over the coming years, reflecting broader changes in German consumer preferences and agricultural practices.
The effects of Germany’s economic challenges are also visible in Lithuania’s furniture industry, where manufacturers report a contraction in the German furniture market of 15% to 30% across various segments, leading to reduced orders and cancellations.
Experts identify several key issues, including high energy costs, regulatory complexities, and chronic underinvestment, which collectively dampen Germany’s economic dynamism.
In an analysis on the IMF’s website, economists Kevin Fletcher, Harri Kemp, and Galen Sher emphasize that an aging population, insufficient investment, and excessive regulation are weakening Germany’s economic foundations, with some analysts arguing that the country’s economic model may need substantial reform.
However, despite the bleak outlook, some Lithuanian business leaders view the German economic slowdown as an opportunity for smaller Eastern European investors to enter markets previously dominated by larger, established players.
Viktorija Orkinė, general director and board member of Eika Asset Management, told lrytas.lt that the economic downturn in Germany has not only made property acquisition more accessible but has also provided more attractive returns on investment. For Eastern European companies like Eika, this shift, she says, represents a unique opportunity to expand into Western markets, which were previously out of reach due to pricing and yield limitations.
Agreeing, S. Gailiūnas says that every cloud has a silver lining.
“We may see some German companies moving their businesses to, say, Lithuania among the other countries,” he emphasized to BNN.
The recent collapse of Germany’s ruling coalition has sparked concern among Lithuanian leaders, particularly regarding Germany’s commitment to deploying a brigade in Lithuania as part of NATO’s security strategy.
Lithuanian Prime Minister Ingrida Šimonytė expressed hope that the German commitment to Lithuania’s defence would remain firm, stating on Žinių Radijas radio that the commitment is too significant to be altered by electoral shifts.
She highlighted the support from Germany’s main opposition party, the Christian Democratic Union (CDU), which has consistently backed the brigade deployment and even assisted Lithuania in advocating for this initiative when they were in opposition.
Defence Minister Laurynas Kasčiūnas echoed this confidence,
asserting that established international agreements between Germany and Lithuania ensure continuity, suggesting that the deployment has already reached “the point of no return.”
According to him, the stability of this commitment is seen as crucial for Lithuania, particularly given regional security concerns and NATO’s broader strategy in Eastern Europe.
“The situation underscores Lithuania’s reliance on strong, sustained defence cooperation with Germany amidst geopolitical uncertainties,” the minister underscored.