Aurelia Butler

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(Reuters) – By chiefly focusing on trying to salvage its industry champions, German policymakers may have overlooked the untapped growth potential of the country’s services sector. The German economy, once described as Europe’s growth engine, has underperformed euro zone peers since 2018 and faces further pain amid plans by car giant Volkswagen (ETR:VOWG_p) to shut factories at home.Adding to such woes, Germany’s governing coalition collapsed on Wednesday after Chancellor Olaf Scholz sacked his finance minister, capping months of wrangling over budget policy and the direction of the economy. While Scholz favoured putting a lid on energy costs and funding state-backed measures to save jobs in the ailing auto sector, pro-market minister Christian Lindner wanted spending cuts, lower taxes and less regulation to allow Germany to keep its “industrial heart.”Yet, Germany needs to start focusing on its services sector, which is smaller than in comparable European economies but growing faster than the country’s manufacturing segment, according to Reuters interviews with 12 executives, entrepreneurs and economists.”If you can do something to boost a bit the services sector, it could overcompensate for the shrinkage in manufacturing,” said Guntram Wolff, senior fellow at think tank Bruegel and professor of economics at the Université Libre de Bruxelles.Services, which range from hospitality to finance and IT and already make up the bulk of Germany’s economy, grew 1.6% in the first half of this year from a year ago, while manufacturing contracted by 2.8%, data from the German Economic Institute IW showed.The services sector represented 70% of Germany’s gross domestic product last year, against 78% in France, 72% in Italy and 75% in Spain, according to Eurostat data.  Business executives and company founders believe a suffocating bureaucracy and a culture of heavy regulation is stifling the creation of new companies and new jobs, particularly for small and mid-sized businesses that together account for 55% of Germany’s workforce.Leonard Benning, a serial entrepreneur and co-founder of fintech lending company Selina Finance, said opening up his company in Britain was painless as he could legally establish it online and get a tax identification number in a matter of days.However, when he launched a business for purchasing and running vending machines in Germany, called DAP GmbH, the same processes took him more than four months and endless paperwork involving authorities and tax accountants. It also cost thousands of euros against just 50 pounds ($64.57) for his UK firm, he told Reuters.While red tape is a problem across the whole economy, 56% of respondents to a services sector poll by the German Chamber of Commerce and Industry (DIHK) published on Oct. 29 listed regulation as their main concern. German industry sector respondents, on the other hand, listed risks to domestic demand as their main worry, along with energy prices, according to the same survey. Lengthy and costly certification and approval procedures prevent small and young companies from entering the German market, particularly in the financial or health sector, said Daniel Breitinger, an executive in charge of startups at Bitkom, the German association for the information technology sector.”The result is that innovation takes place in other countries,” said Breitinger, whose association represents 2,200 companies. BARRIERS REMAINOverregulation is also exacerbating a labour shortage, with 50% of companies active in Germany’s services sector saying they struggle to find workers, according to a 2023 report by DIHK.Many services sector professions, including lawyers, accountants and doctors, require specific legal standards and certificates to practice. But in Germany the requirements appear to be stricter and affecting a wider range of jobs. The country has 33% of the total workforce employed in regulated professions, well above an EU average of 21% and the highest proportion of any EU member, data from a 2021 European Commission report show.Marcel Krieb, managing director at Pretium Associates, said Germany’s strict employment qualifications make it difficult to find young new hires for his firm, a financial consultancy for mid-sized companies:”We are the country of titles,” he told Reuters. Only 1.4% of German-based auditors are under 30 due to the long training requirements, while 31% are between 50 and 59, according to a July report by the German Chamber of Public Accountants.Overcoming such barriers requires getting policymakers’ attention.But while manufacturers can count on the mighty business lobby BDI, which describes itself as ‘The Voice of German Industry’, the domestic services sector is extremely fragmented and represented by a myriad of small associations, Krieb and other executives lamented.Tellingly, Germany’s statistical office publishes more than 20 monthly datasets for the industrial sector, including very detailed figures for the automotive, chemical and pharmaceutical sub-segments. But monthly figures pertinent to services looks limited to retail sales, people employed in the sector and turnover in accommodation and food services.For Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, the scarcity of data is the best example of the scant attention paid by politicians to this crucial part of the German economy. “It is a demonstration of a biased view on the economy,” de la Rubia said.($1 = 0.7701 pounds)($1 = 0.7744 pounds) More

NEW YORK (Reuters) – Violence and crime absorb almost 3.5% of Latin America and the Caribbean’s (LAC) economic output, depleting funds that could be used in education and assisting the vulnerable, a report by the Inter-American Development Bank (IDB) showed.Beyond the human toll, the cost of crime amounts to almost 80% of the region’s public budgets for education, twice as much as what is spent on social assistance, and 12 times the budget for research and development, the study, using data from 2022 and published on Monday (NASDAQ:MNDY), showed.Crime “limits growth, drives inequality, and diverts private and public investment. We must join and redouble efforts to change that reality,” IDB President Ilan Goldfajn said in a statement.The study calculates the direct cost of crime in three areas: loss of human capital as productive time, spending on crime mitigation by businesses, and public spending on crime prevention and criminal justice. In 2022, security expenses by private businesses accounted for 47% of the total cost of crime, while state spending on crime prevention represented 31% and the loss of human capital made up 22%.For comparison, a set of data from Poland, Ireland, the Czech Republic, Portugal, Netherlands, and Sweden showed their costs are 42% lower than in LAC. If the region got to the levels of its European counterparts, it would have near 1% of GDP to invest in social welfare and other programs, according to the IDB.A parallel study from the International Monetary Fund cites Latin America as accounting for a third of homicides globally despite holding less than 10% of the world’s population, with organized crime being especially costly.”The presence of gangs and drug trafficking amplify the costs of doing business,” the IMF report said. “A novel analysis of Mexican firms suggests that the damage costs of crime are four times higher for firms that report gangs operating in their vicinity.”The fiscal cost for governments is also considerable, according to the IMF, which states that spending on public order and safety in the region averages around 1.9% of GDP and over 7% of overall spending.”While spending more on security and deploying more police seems to contribute to lowering crime, other factors are likely more important in LAC, with spending efficiency playing a critical role. For example, despite a high proportion of spending on the judiciary, the courts’ ability to punish crimes remains weak.”Among policy proposals the IMF says LAC should establish a “regional knowledge platform” to collect, exchange, and analyze data, alongside the dissemination of best practices on effective economic and security policy responses. More

More than 220 people died after torrential rains on Oct. 29 triggered floods that swept through the suburbs south of the regional capital Valencia. The measures are on top of the 10.6 billion euros in aid announced last week.”There are still streets to be cleaned, there are garages to be drained, there are many infrastructures to be repaired and, above all, many lives, many homes and many businesses to be restored to normal,” Sanchez told reporters after the weekly cabinet meeting.The package, with 110 measures, extends aid to rental households and includes a 500 million-euro package to remove mud in the affected area and 200 million euros in aid to farmers.Sanchez said it includes an additional 12-months of mortgage relief for vulnerable households, in addition to the one-year moratorium announced last week.Sanchez also said the government will assign 150 houses or flats in or near the damaged areas to affected families and will earmark 25 million euros for buying houses. ($1 = 0.9380 euros) More