Sometimes it is hard to know who to believe during a crisis. Optimists in Germany might take solace in a recent Bloomberg report announcing that “the country’s economic downturn may be ending”. Unfortunately, the word “may” is carrying a lot of weight here. In the very same week that Bloomberg was predicting an improved economic outlook for Germany, there was a renewed barrage of bad news. It was revealed that the country’s five-year expected tax revenues will fall short by €60 billion, there is going to be a budget gap of more than €40 billion, and Germany is on course to enter its second recession year in a row.

Instead of disappearing, it seems as if the recession is spreading, hitting the backbone of the German economy: the so-called Mittelstand, the 3.1 million small- and medium-sized companies that make up 99.4% of all firms. These companies are not just crucial for innovation and the labour market, they also constitute a large part of the tax base. The very structure of the Mittelstand makes it difficult for its members to move assets around globally in the way huge companies like Google can, and whatever the tax burden is, it hits those small enterprises directly and immediately.

This also means that if they suffer, so does the tax revenue and the predicted massive shortfall demonstrates that there is nothing left to squeeze from smaller German entrepreneurs. Unsurprisingly, the IMF has now cut its growth forecast for Germany for this year and the next, from 1.3% to a meagre 0.8%, making it the slowest growing economy in the Eurozone and the G7.

Berlin’s answer to this problem is the planned creation of a “Germany Fund” to stimulate investment, but one should not put too much hope into it. After all, this new fund is being framed as a plan to create “a climate-neutral modern industrial future” according to Green economic minister Robert Habeck. This is a polite way of saying that Germany will yet again throw billions at the continuously failing energiewende (energy transition), which is one of the main reasons for Germany’s economic problems to begin with. The University of Cologne has calculated that government subsidies for renewables will reach €18 billion in 2025, €2 billion more than originally anticipated.

And while Habeck continues to dream green dreams, everything else continues to deteriorate. Remember the once hailed German punctuality? Well, according to national railway services there are plans to finally make trains run on time again — but not until 2070, more than a generation down the line. An official Government poll of 3,300 companies showed that 37% were considering cutting production or moving abroad, up from 31% last year. There is a sense of exhaustion that permeates the German public and its entrepreneurs, and that is made worse by a political class that appears to be entirely oblivious to the mounting problems in all areas of life.

Under these conditions, is it really a surprise that more and more Germans — literally and figuratively — are beginning to look for an alternative for Germany?

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Ralph Schoellhammer is assistant professor of International Relations at Webster University, Vienna.

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China is trying to catch up with America on artificial intelligence. The Wall Street Journal has reported that Zhipu AI — one of China’s six “AI tiger” LLMs — has released a new model that can rival leading US systems, including Anthropic’s Mythos, in cybersecurity tasks such as pinpointing security bugs. While this marks a milestone in China’s drive to catch up with Western AI capabilities, strong performance on a single benchmark does not mean it has taken the lead. Chinese models still lag behind their Western counterparts in broader capabilities, such as autonomous operation. Skepticism is therefore warranted before resorting to hysterical conclusions, but complacency about the geopolitical implications of China’s AI advances would be an even greater mistake.

On the infrastructure side, Chinese AI is still constrained by access to advanced chips, with American labs way ahead in computing capacity as well as investment. Analysis from earlier this year suggests that Chinese models are likely to be at least a few months behind those in the US. But they are still continuing to make progress, or that the geopolitical importance of AI will be decided only by whose LLM has ventured deeper into the technological frontier. The practical applications of AI, countries’ to capture foreign markets, and the application of AI into the real economy will matter just as much.

Here, China may hold an advantage. As with its dominance across many critical supply chains, Beijing may not need to produce the most advanced AI systems — only those that are affordable and widely deployable. In doing so, it could consolidate global influence by supplying functional, low-cost AI at scale.

Beijing seems to be pursuing exactly that path, developing an AI “open-source” strategy that offers affordable, widely available AI models for companies and individuals to use and modify as they wish. The production of the DeepSeek AI model, which matched the performance of Silicon Valley tools such as ChatGPT at a fraction of the cost for users, created goodwill among Chinese models with developers.

The four most popular models on OpenRouter, an AI hardware platform for developers, are now all Chinese. The goal for China is not only to win the frontier-model race, but to make its systems the default layer of AI adoption across industries and global markets. For most economies, the choice is increasingly between an affordable tool they can deploy now and a more robust one that may be out of reach.

And while the countries adopting Chinese models may be exposed to political pressure and cyber threats from Beijing, safer and more capable alternatives matter little if they are unaffordable. American AI companies are already under pressure to monetize products whose operating costs are rising. If Chinese open-source models become the cheap default for startups, universities, governments and businesses across the developing world, then America’s AI lead will be eroded from below.

Perhaps more concerning for America in the long run is how AI can give Chinese manufacturing even more strength, through the ongoing integration of AI as a general-purpose technology. China’s new Five-Year Plan mentioned AI more than 50 times and includes an “AI+” action plan aimed at spreading AI across the economy.

Beijing has been pioneering automation of its critical infrastructure for years, with promising recent results in increasing warplane production capacity. In that regard, China’s open-model strategy and manufacturing dominance will reinforce each other. Cheap, adaptable models accelerate deployment across the real economy while those deployments generate real-world data and use cases that can feed back into further model improvement.

The United States should not dismiss the importance of its lead in the AI race. That lead worries Beijing, not least because a more automated Chinese economy would also become more vulnerable to AI-generated cyber threats. But nor should Washington assume that China cannot catch up with American capabilities over time.

This AI competition represents part of a broader struggle over tech supply chains and geopolitical influence. Decisions over whether to adopt US or Chinese models could produce a more fragmented global reality, with different regions relying on different cloud providers, chips and security structures. The result will likely be a global economy which is divided into competing spheres, rather than one which produces a single winner.

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Miquel Vila is a political and geopolitical risk consultant focusing on industrial strategy, critical infrastructure and global supply chains.

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