Why the changing economic winds in Germany could bring opportunities for Portugal

In 2024, exports from Portugal to Germany increased by 17.9% to €9.76Bn despite the slowdown in the German economy. And with uncertainties in Europe and a continued trend to nearshore, that can only benefit Portugal, say Markus Kemper and Thorsten Kotschau, who lead the German-Portuguese Chamber of Commerce and Industry (AHK).

Text: Chris Graeme; Photos: AHK

Last year was a surprisingly good year for trade relations between Germany and Portugal. This despite unsettling rumblings from a German economy that seemed in crisis, struggling with stagnation, fierce competition from China’s booming electric car sector, and high energy costs.

It might have had the worst performing major economy in the world in 2023, yet Portuguese exports to Germany were booming. They increased by an impressive 17.9%, reaching €9.76Bn, making the country the second-most important export destination for Portugal’s goods.

And this success is far from driven by traditional textiles, cork and canned fish products like some stubbornly still think. On the contrary, Portugal has for quite a considerable time gained a solid and reliable reputation for quality in the manufacturing of vehicles and automotive parts, industrial machinery and equipment, plastics and rubber products and, of course, tourism, which is counted as an export.

Essential Business was curious to learn more about the continuing strong commercial ties between the two countries, which have continued to flourish despite Portugal maintaining a trade deficit with Germany, with imports exceeding exports by about €3.4Bn.

With that in mind, I met the President of the German-Portuguese Chamber of Commerce and Industry (AHK), Markus Kemper, and Thorsten Kotschau, the chamber’s Executive Director.

First off, both of these personalities have led extremely varied and interesting careers in Portugal.

Take Markus. Fully integrated in Portugal’s business world for decades, he owns and runs the successful Sintra-based synthetic filaments company Filkemp, which produces bristles, filaments and fishing lines in various combinations of special polymers and copolymers.

Markus also sits on the board of the Portuguese Industrial Confederation (CIP) and ATEC Training Academy, as well as being a founding partner with his Portuguese wife Dionisia Ferreira of one of Lisbon’s chicest, cutting-edge beauty and wellness clinics, Ousia.

As for Thorsten, who has been with the AHK for three years as its director, he has a solid track record in bi-lateral trade relations behind him as a director of various German chambers of trade and commerce around the world over the past 15 years, including stints in Colombia, the Americas and Western Europe, Uruguay and India.

The AHK network – Germany’s secret economic weapon

The chamber has been established in Portugal for 70 years, celebrating its anniversary with a series of events last year. It is actually part of a wide German State-owned network with 150 chambers in 93 countries worldwide.

In Portugal, the AHK also has a non-executive board on which the CEOs and managing directors of some of Germany’s biggest companies with a presence in Portugal, such as VW Autoeuropa, Continental, Schmitt + Sohn and Siemens.

The AHK has also been a regular fixture at Germany’s largest industrial technology trade fair Hannover Messe where, three years ago, Portugal was a main sponsor and featured country with around 120 stands, although Markus says that the star of large catch-all trade fairs is waning in favour of speciality ones.

Celebrating 70 years

The AHK’s presence in Portugal is significant, with 70 employees, but Markus explains “our chamber system is different to other European chambers operating in Portugal. With an annual turnover of more than €7 million it basically operates as a consultancy company.”

“We started in 1954, when around 12 German companies came together to form what was then the German Chamber in Portugal to represent the interests of German companies here in Portugal,” says Thorsten. He recalled the 70th anniversary events in 2024 that culminated in a Lisbon gala dinner, attended by a board member of the overall umbrella German chambers organisation DIHK, which has 79 chambers in Germany, Dr. Ilja Nothnagel, who flew in specially from its headquarters in Berlin, and featured a special video message from Robert Habeck, the Vice-Chancellor of Germany and Federal Minister of the Economy and Climate Protection.

It is the DIHK that coordinates the network of the 150 or so bi-lateral chambers of commerce (AHKs) throughout the world, but in the most important countries, the AHKs have more than one office. In Portugal, for example, it has an office in Porto as well as three education centres all over Portugal.

In Germany, each and every company has a legal obligation to be a member of its local DIHK chamber, which has around 4 million members, although this is not the case overseas in countries like Portugal.

The AHK in Portugal, however, has around 1,050 members. It’s interesting that a feature article published in the Wall Street Journal in 2013 stated that Germany’s vast network of chambers of commerce was the country’s “secret economic weapon”, which it referred to as “an outsize global sales-promotion network”, boosting a trade surplus that has become “a source of friction with its European and US allies”.

“If you are a Portuguese company with products you want to find retailers for in Germany, you come to the Chamber, and we will help you to establish in Germany. You tell us where and how, and the type of resellers, and we can help,” says Markus.

And because each company is a member of the chamber system in Germany, they can tap into a huge data base.

Germany – Portugal’s second-largest market

“Whereas initially in the 1950s the chamber represented the interests of German companies in Portugal, today it works both ways so we can help Portuguese companies that are already in Germany or would like to operate in our country,” adds Thorsten.

In fact, the majority of the AHK members in Portugal are Portuguese companies, with the members representing approximately 12% of Portugal’s GDP, making Germany Portugal’s second-largest export market.

But how is the flagging German economy, which contracted by 0.2% in 2024, marking the second consecutive year of decline, likely to affect Portugal’s export reliance on Europe’s largest economy?

Thorsten points out that Germany is set to implement a Recovery and Resilience Plan of its own –a €500Bn infrastructure fund, marking a significant shift in its fiscal regime.

This initiative will establish a fund that falls outside the scope of the country’s debt brake (Schuldenbremse), a constitutional measure designed to limit new government borrowing.

The fund will finance projects beyond the usual budgetary constraints, allocating €100Bn to the federal states and municipalities and €400Bn to the federal government over a 12-year period. Notably, access to this funding requires supplementary federal investment, with at least 10% of the annual federal budget having been already dedicated to infrastructure projects.

The initiative aims to overhaul the country’s infrastructure network, modernising areas such as energy, transport, digitalisation, science, research and development, education and hospitals.

The fund will also allocate capital to initiatives aimed at helping Germany achieve carbon neutrality by 2045. In order to finance this initiative, Germany will issue state bonds, leveraging its strong credit rating to attract investors and hopefully kick-start the economy.

“We had cheap gas from Russia, which we no longer have, the Chinese market, which had opened up and was very hungry for our products, has suffered a downturn, and now we also have to step up the percentage of our GDP spent on defence funding.”

“However, with German companies near-shoring, Portugal is actually benefitting from certain crises that we had in Europe and the Far East,” says Thorsten.

“What really killed us was the decision by Brussels to end fossil fuel-powered cars after 2035, given that German industry is also reliant on car manufacturing, which was really cost-intensive in terms of development of gear boxes and petrol engines,” admits Markus.

On the other hand, an electric engine is simple to manufacture, while the amount of horsepower is increasing up to 1000 hp, which has enabled Chinese brands to manufacture cars at very competitive prices since they are leading in battery manufacturing development, with Germany losing its technological advantage as a result.

How Germany’s industrial crisis could benefit Portugal

Nevertheless, ironically, this stiff competition provides significant opportunities for Portugal, given that German has a lot of manufactories in Eastern Europe close to the war in Ukraine, with industrialists fearing Russian expansion.

“If you are a German investor, are you going to run the risk of operating a manufactory or opening a plant in Romania, Hungary or Slovakia with this uncertainty, when you can move to Portugal where there is a qualified workforce and reliable quality output?” Markus reflects.

But is Portugal competitive in terms of wages? Markus says thinking like that is a mistake. “You cannot continue to sell Portugal based on low wages. You have to sell products on the quality of the craftsmanship. Portugal has fantastic universities, its engineers are second to none, the average Portuguese speaks good English and Spanish and gets by in French,” he points out.

Competition from AICEP and the Big Three

Markus and Thorsten say they are seeing lots of German companies moving some operations to Portugal. “Obviously, as a chamber, times have changed. Thirty years ago if you wanted to invest in Portugal, you knocked on our door. You had to come to the chamber.

“Nowadays, companies have other options such as Portugal’s export and investment bureau AICEP, which is geared to attracting direct foreign investment to Portugal and too is working as a consultancy,” says Markus.

Also, the AHK’s hourly consultancy costs aren’t the same as Deloitte, PwC or EY. Its charges depend on the depth of the services and advice clients want and how detailed their search needs to be, and so it charges according to the amount of work it will entail.

“It’s always based on a cost plus added value because we’re a not-for-profit organisation, so our main goal is not to make money but fund internal structure costs.”

To support its core activity, the AHK runs around 55-60 events each year, some very big with hundreds of people and some smaller ones such as workshops and webinars.

Opportunities for arms manufacturing?

But what about the changes in economic and political policy in Washington and the tariffs of 25% slapped on German car and steel imports from April?

Europe’s auto industry is in a state of shock after US President Donald Trump unveiled the tariff on imported vehicles. The expanding trade war is hammering auto stocks and testing strained ties with allies like Germany. The answer is Markus and Thorsten still don’t know what the effects will be, but they can’t be good.

Another area of opportunity, of course, is arms manufacturing, in which Germany has excelled since the late 19th century.

“I think everybody bar the Portuguese are upping defence spending – the government has pledged an investment of 2% –, but we see potential and there is already a commercial link. We have a lot of Portuguese suppliers for the German automotive sector, and these factories could switch over to arms manufacturing since the car sector in Europe is facing certain troubles, but we see the interest of the Portuguese companies,” says Thorsten.

This might be the case with certain VW car plants in Europe that might turn some of their capacity over to arms manufacturing, but not in Portugal that has just won a contract to produce the new VW ID.1 electric car at VW Autoeuropa, one of the most productive VW plants in Europe, conclude Markus Kemper and Thorsten Kotschau of the AHK Portugal.