Germany s Digital Scoreboard

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1 Germany s Digital Scoreboard Still in Neuland or catching up? Carsten Brzeski, Chief Economist Inga Fechner, Economist July 2018

2 Still in Neuland or catching up? Sound fundamentals, low interest rates, and record high employment currently bode well for the German economy. However, some darker clouds have appeared in the German economic sky. Protectionism would definitely hurt the self-proclaimed export world champion and Italian politics and the continuing migration crisis could slow down the current euphoria. And there are longer-term challenges such as ageing and digitalisation. Complacency is not an option. The German economy needs new investments and structural reforms. Improving the digital infrastructure is urgently needed as digitalisation is key. Not only to get the German population up to speed but to ensure that German small and medium-sized enterprises (SMEs) and all the hidden champions, don t fall behind international competition. While Germany has a digital agenda for a lot needs to be done in order to become a real forerunner. In 2013, Chancellor Angela Merkel called the internet Neuland. It might not be so new anymore but Germany clearly needs to step up its game to really embrace and reap the benefits of Neuland. 2

3 Germany ranks 15th in IMD s 2018 world competitiveness ranking 0 How Germany has lost it s competitive edge over the years The world competitiveness ranking is published yearly by the Swiss-based International Institute for Management Development (IMD) since 1989 and is a worldwide reference point on the competitiveness of countries. The ranking combines hard data in the form of statistics from international regional and national sources and soft data in the form of a survey sent to middle and upper-level managers for each of the 63 economies assessed Source: IMD World Competitiveness Ranking

4 And 18th when it comes to digital competitiveness in Source: IMD World Digital Competitiveness Ranking

5 Domestic economy International trade International investment Employment Prices Public finance Tax policy Institutional framework Business legislation Societal framework Productivity & efficiency Labor market Finance Management practices Attitudes and values Basic infrastructure Technological infrastructure Scientific infrastructure Health and environment Education Germany s competitiveness landscape could look better especially when it comes to infrastructure Infrastructure ranking Source: IMD World Digital Competitiveness Ranking

6 And overall digital competencies The Digital Economy and Society Index 2018 ranking Connectivity Human Capital Use of Internet Integration of Digital Technology Digital Public Services Source: European Commission 6

7 Internet speed is too slow for the top South Korea Norway Sweden Hong Kong Switzerland Finland Singapore Japan Denmark United States Average internet connection speed (Mbps) Q Germany (25) Source: Akamai 7

8 Also in companies Enterprises with fast internet access all enterprises with 10 or more persons employed (%), 2017 Denmark (EU-max) Netherlands Sweden Portugal Germany France Greece EU-28 = 40 Cyprus Italy (EU-min) Source: Destatis, Eurostat. Fast internet refers to fixed broadband connections with a contractually agreed data transfer speed of at least 30 megabits per second (Mbps). 8

9 Online sales and cloud computing are not widespread Companies in Germany that have... (%) 2017 Fixed broadband Website Mobile broadband Social Media Fast internet Online sales Cloud Computing Source: Destatis 9

10 Share of glass fibre Glass fibre is made up of multiple strands of glass. Fibre optic cables are designed for the transmission of large amounts of data and for long distance. Ready for Industry 4.0? Share of fibre connections in total broadband subscriptions (%), 2017 Japan Sweden OECD Turkey Netherlands United States France Italy Germany Greece 0% 10% 20% 30% 40% 50% 60% 70% 80% Source: OECD Broadband Portal 10

11 IoT devices IoT: Internet of things describes the networking of physical devices (e.g. fitness tracker, vehicles or home appliances) with sensors, software or electronics via the IP network. The physical devices are able to connect and exchange data. Share of respondents who use IoT products in Germany (%) Smart thermostat Smart lighting Connected home appliance Camera / alarm system Connected car Smart watch Fitness tracker W Wireless speakers Source: Deloitte, as of July

12 As well as the number of wifi hotspots remain low Commercial hotspots per 10,000 inhabitants South Korea UK Japan US China Sweden France Germany Netherlands Russia Source: ipass, OECD ING Economic & Financial Analysis. Population data for Russia and China as of

13 While costs remain high... Mobile phone tariffs in comparison ( ) per month Germany Austria flat rate 60 GB France Sweden UK Netherlands flat rate flat rate flat rate flat rate The chart shows monthly prices for unlimited internet flatrates, e.g. tariffs that do not reduce the surfing speed after consuming a certain amount of data, or very large data packages. Switzerland flat rate Spain 25 GB Italy 100 GB Poland 100 GB Source: Verivox 13

14 Not only for mobile phone tariffs but electricity too Electricity price for households per 1 kwh in H ( ) Excluding taxes and levies All taxes and levies included Source: Eurostat 14

15 Bulgaria Romania Greece Cyprus Italia Portugal Croatia Hungary Slovenia Poland Spain Malta EU Slovakia Germany Lithuania Austria Czech Republic Ireland Latvia France Switzerland Belgium UK Luxembourg Estonia Sweden Finland Netherlands Denmark Norway Iceland Online banking is on the rise, yet remains low when compared to peers Online banking users (%) Source: Eurostat 15

16 But robots are already here Number of installed industrial robots per 10,000 employees in manufacturing industry, 2016 Korea Singapore Germany Japan Sweden Denmark US Italy Belgium Taiwan Spain Netherlands Canada Austria Finland Slovenia Slovakia France Switzerland Czech Republic Average world: Source: IFR 16

17 Employment growth (% change) And are changing labour markets Employment growth and probability of computerisation in Germany (%) 12% Professionals 10% Managers 8% Elementary occupations 6% 4% Technicians and associate professionals Service and sales workers Plant and machine operators and assemblers 2% Craft and related trades workers Skilled agricultural, forestry and fishery workers Clerical support workers 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Probability of computerisation Source: ING-DiBa Economic & Financial Analysis, Die Roboter kommen (doch nicht?), Juni

18 and having an impact on middle-class jobs 9% 8% 7% 6% 5% 4% 3% 2% 1% Employment growth in Germany % change, % Highly complex/complex occupations Skilled workers Elementary occupations Source: ING-DiBa Economic & Financial Analysis, Die Roboter kommen (doch nicht?), Juni

19 For Germany s Mittelstand it s more of an opportunity than a threat Do digital technologies play a role for the business model of your company? Is the growing importance of digital technology more of a threat or an opportunity? 100% 90% % 90% 20 80% 70% 26 80% 70% 6 60% 60% 50% 50% 51 40% 37 40% 30% 30% 20% 20% 10% 23 10% 23 0% Yes, a very. large role 0%. Yes, a medium-sized role Hardly any role No role at all Source: EY, Digitalisierung im deutschen Mittelstand, März

20 It s also about money Market for big data is growing at double-digit rates in Germany Sales ( bn) Hardware Services Software Source: Bitkom, IDC 20

21 ( bn) And value addition Value added: value of output minus the value of intermediate consumption 1,000 ICT sector value added Germany US China EU (ex Germany) Source: European Commission, The 2018 PREDICT Key Facts Report, ING Economic & Financial Analysis. ICT sector acc. to operational definition, data for 2016 and 2017 has been nowcasted. The operational definition takes into account the standard distinction between manufacturing and services, but does not include the sectors Manufacture of magnetic and optical media and ICT trade industries 21

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