German economy on the crossroads. What awaits Poland?

What are the most pressing economic challenges facing business leaders today? 

These challenges vary somewhat depending on the region. If we look at Europe, and perhaps particularly at Germany, we are dealing with a situation where various unprecedented issues have arisen. We've faced the COVID-19 crisis, and now, due to geopolitical factors, we are facinghigh energy prices and inflationary pressure. This has, of course, led to a situation where overall economic prospects are not at their best. Business leaders must navigate these daily issues to ensure their projects remain profitable, manage costs, and (re-)configure their companies for the future. In a sense, this is unprecedented. Recently, we conducted a survey among strategy directors from German companies, which revealed that they are still quite resilient to exceptional circumstances. We don't see bank bankruptcies, and unemployment remains relatively low in many countries. So, you could argue that things are okay. However, sentiments have been more positive and in some industries business leaders are quite concerned, 

Where is the German economy currently positioned? 

Technically, we are in a recession. The IMF has lowered its economic growth outlook for Germany in its latest forecast. So, we are indeed in a challenging situation. German manufacturers are particularly affected by rising energy prices. It's worth noting that Germany has strong chemical and metallurgical industries, among other energy-intensive sectors. Nevertheless, inflation leads to a decrease in margins in many industries. I believe there are structural issues that we haven't addressed in recent years. 

How do you assess the prospects of returning to a growth trajectory in Europe, especially in Germany? 

Entrepreneurs across Europe definitely need a clear plan. It should be evident which industries are those of the future, how to invest in them, and where the funding will come from. Infrastructure requires investment, including digital infrastructure, which might be more critical than physical infrastructure today. Poland, for example, is at the forefront of digitalization, including government services and societal digitalization. Similar actions need to be taken in Germany. We must improve our education system and universities. I think there is a growing agreement on the main levers, now Germany needs to execute. 

Poland is strongly connected to the German economy. How will this affect our country?

In Germany, we have significant players in numerous industries, such as the automotive and chemical sectors. Growth in these sectors is below average. More concerning is that the recovery in these industries takes much longer compared to other sectors. Simultaneously, the pace of innovation is decreasing, which is genuinely concerning. However, there are many small and medium-sized enterprises that are leaders in their segments. I believe they can drive transformation, but an overall plan is needed including infrastructure and regulatory environment. Ideas regarding energy prices should also come into play. In Europe, we have a chance to lead in generating income from modern technologies like green hydrogen. We have many engineers and know-how, but we need to align engineering and production capabilities. How long will this opportunity last? That's the crucial question. 

Does the European Green Deal offer more opportunities or challenges?

Europe was a leader in transformation and still is in some areas such as having a clear taxonomy and a framework for sustainable finance. There is a risk that we will  fall behind, particularly compared to the United States.  The substantial incentive schemes such as the Inflation Reduction Act introduced by the Biden administration have significantly promoted the development of new technologies at scale. I think the European Green Deal is an excellent foundation. Still, we need a clear plan for how to execute the transformation itself. It's estimated that we need to spend about 200 billion euro annually in Germany alone for a green transformation of the economy, which represents around 5% of GDP. It's doable, but the financial sector can't finance it itself. So, we need substantial additional funding from the private sector and institutional investors. 

Is the German economic model adapting quickly enough to geopolitical changes and shifts in consumer behavior?

Yes, it is adapting quickly enough - and we already see successful examples and companies. Just 16 years ago, Germany was  the "Sick man  of Europe" and then surged ahead in the last decade. Today, the challenge is to balance short-term challenges like inflation and margin pressure with a long-term plan. It's a genuinely challenging strategic task for decision-makers. I believe we haven't yet unlocked all our potential. Governments need to act, and industry leaders are fully aware of this and are acting as intensively as they can. One area where we need to accelerate significantly is digitalization using generative artificial intelligence. New developments create enormous opportunities, but there's also a risk that we'll lag behind. This requires coordinated efforts. 

It's been a year since Strategy& started in Poland. Why did you decide to expand Strategy& to Poland and Central and Eastern Europe?

First and foremost, we're very proud of this achievement and a highly successful first year. We've served many clients. The Polish region and this part of Europe are very significant on the economic and geopolitical landscape. This is reflected in our strategy and positioning. We have particular strength in digital solutions and our Polish team. We want to expand these activities to other countries. We see that globalization appears to be reversing, with more countries optimizing their own economies first. However, many issues we discuss can only be addressed at the international level. I think Central and Eastern Europe is a crucial region in this context. Digitalization can be achieved with well-educated people, but investment should not be overlooked. Some energy-related issues can only be resolved collaboratively. I'm an advocate of international cooperation. We've seen tremendous potential in Poland and this region, especially because we have a very capable team, which provides an excellent foundation for further expansion.

What are the future plans for Poland?

Poland is probably the most important country in this part of Europe for our expansion. Thanks to our strong start, we're now very strong in consumer and retail sector consulting and have a very competitive position in what we call transaction strategy. With these skills as a foundation, we want to enter very important industries, such as pharmaceuticals. We also have ideas regarding financial services, including banks and insurance. So, we want to have a share in other industrial sectors in Poland. For example, we've been working in the automotive industry for years and have international knowledge. 

What is the difference between Strategy& and PwC?

 Strategy& is the global strategy consultancy of PwC. We are part of PwC, which provides a unique and comprehensive approach to solving the challenges facing companies and managers today. Our journey started with the acquisition of Booz & Company, which was one of the leading strategic consulting firms globally. The company began its operations in 1918, over a century ago. We have a distinctive approach to clients. We engage with senior management, understand their language, and genuinely help them tackle specific issues. What sets us apart from other firms is that many things we can achieve by combining our capabilities within PwC. A significant portion of strategy discussions depends on regulations and tax system complexities. To develop the right strategy, you need to comprehend these intricacies. So, we're strategy specialists within the PwC structure, and by joining forces, we assist our clients in transforming their businesses.