vbw – Bavarian Industry Association
2025
The external economic environment for German companies has deteriorated significantly. This is because support for global rules-based free trade is rapidly declining. Numerous countries, such as the United States and China, are calling for alternatives, thereby undermining the foundations of the global economic order.
This poses risks for German and Bavarian companies, as they are closely integrated into the global economy.
The ties with the US and China are particularly strong: around 20 percent of Bavarian exports and 46 percent of Bavarian direct investments abroad go to the US or China.
Against this backdrop, we have examined various scenarios for the Bavarian Business Association (vbw – Vereinigung der Bayerischen Wirtschaft) to determine how the global economy could develop in the future and what options the EU has to shape this development.
The current world economic order no longer works: the Western community of nations has lost its global economic significance. At the same time, geopolitical rivalries have intensified. These two factors will change the structure of the global economy in the future.
The study outlines three scenarios with different consequences for the German and Bavarian economies:
Despite its limited geopolitical influence, the EU is well placed to take control of its own external economic relations. Although the EU’s relations with both the US and China will weaken in the coming years, the EU remains an attractive partner for economies that continue to have a strong interest in rules-based, liberalised economic cooperation and wish to remain as neutral as possible in the geopolitical conflict between the US and China.
The EU can conclude free trade agreements with countries such as Canada, Japan, South Korea, India and Australia, or with groups of countries such as the ASEAN states, the Mercosur group or the Gulf states, or expand existing agreements. It can also deepen its own internal market by removing the remaining trade barriers in the goods sector and the numerous barriers to trade in services.
It is still unclear what the future global economic order will look like. However, three conditions are likely to apply in all scenarios:
The study first examines the current discussion on alternative structures for the global economy and the key drivers of this development.
It then outlines various scenarios illustrating the possible range within which such alternative structural models could take shape.
Building on this, the study uses examples to show what effects the assumed changes are likely to have on the German economy – and what strategies are available to stakeholders in Europe, Germany and Bavaria to position themselves as securely and independently as possible in a future world that is likely to be significantly more volatile.
To the study (PDF, vbw website) (in German)
Project team: Silvia Golm, Philipp Kreuzer, Johann Weiß
Last update: 07.05.2025
Senior Project Manager
Managing Partner | Chief Economist
The Talent Booster Mechanism supports eleven EU regions that are suffering from a decline in the working-age population and a low proportion of university graduates. The first pillar has been successfully implemented.
A shrinking workforce, digitalisation and decarbonisation: Prognos examined the specific effects of global trends on regional labour markets.
The results of the OVERLAP project show that demographic changes, digital transformation and the need for a green transition are simultaneously affecting regions across the EU.
In recent years, Europe has maintained its strong position in the global market for clean energy technologies, but faces growing competition. On behalf of the European Commission, we examined the competitiveness of these technologies.
Germany needs around 166,000 additional full-time places for primary school children by the summer. We are examining how this can be achieved for the Federal Ministry of Education.
How effective are EU cohesion and structural policies in driving green change in Europe? We examined this and other questions together with COWI, Milieu and CSIL on behalf of the European Commission (DG REGIO).
How can smart specialisation be empirically justified and managed? On behalf of the European Commission (DG REGIO), Prognos is implementing the S3 Community of Practice (S3 CoP) together with a network of partners.
For the European Observation Network for Territorial Development and Cohesion (ESPON), we are investigating how regions can work together more effectively to protect the climate.
The Single Market Programme promotes the EU internal market in order to strengthen it, standardise it and make it more competitive. Prognos was involved in the mid-term evaluation of the programme.
To facilitate the transition to a climate-neutral economy, Prognos is supporting the European Commission in implementing the European Fair Transition Observatory (EFTO).
We combine economic research and strategy consulting for sustainable decisions in politics, business and society. Our robust data, precise analyses and scientifically based findings enable fact-based progress – financially independent, politically neutral.
