Since the Russian invasion of Ukraine, energy prices in Germany have spiked. To make matters worse, the German government has clamped down on the nation's nuclear power plants and relies on expensive fossil fuels from the Middle East and the US. Many German businesses have offshored their operations to China, the US, Latin America, and Africa since energy and labor are cheaper abroad. As a result, has grown immensely, reaching nearly 6%. This number will only grow as these conditions persist.

Looking back, McKinsey wrote an article back in 2004, detailing the need for Germany to offshore their factories. In it, they noted that offshoring enables German companies to reduce costs, offer new products and services, and become more competitive. With the declining birth rate and aging population worsening each year, offshoring will become necessary for the German economy to supply the low-cost goods and services the country needs to maintain or improve its standard of living.

Seeing the US offshore jobs to India, the US economy saw the creation of new, higher value-added jobs that then created a large net gain in wealth for the country. Could Germany do the same? With high regulatory burden on the private sector with high energy prices, it will be difficult for the nation to progress economically. For a nation to see growth, it must make its energy affordable and abundant. Germany can't attract higher value industries if its energy prices remain high. Sure, it may promote energy-efficient industries but it also harms consumers and other businesses. Without all businesses doing well, it will be difficult for those energy-efficient industries to generate sales that can allow them to expand and provide more jobs to the German people.

Germany should cut down on the red tape and promote energy production and investment if it wants to position itself for a brighter future. In the meantime, it's hard to justify the continued outperformance of the DAX outside of the growing efficiencies of German tech giants as a result of offshoring.