Germany’s industrial sector grapples with competition, energy costs
Germany’s robust industrial base is confronting existential challenges due to soaring energy costs, sluggish global demand, and the transition towards net-zero economies, compounded by intensified competition from China.
Concerns over potential “deindustrialisation” have prompted calls for government intervention, but experts offer varied interpretations of the situation, Reuters reported on Thursday.
Industrial production data, a key barometer of the sector’s health, have shown a downward trajectory since late 2017, exacerbated by the COVID-19 pandemic and the recent Ukraine conflict.
Torsten Schmidt, an economist at the Leibniz Institute for Economic Research (RWI), predicts a sustained decline in industrial output following energy price hikes linked to the war.
While industrial production offers real-time insights, economists also consider broader indicators like manufacturing’s contribution to the economy.
Although the volume of manufacturing output has dipped slightly, the value added per unit has increased, suggesting a shift towards higher-quality products. Additionally, companies are increasingly sourcing inputs domestically, bolstering the resilience of Germany’s manufacturing sector.
Despite a long-term decline in manufacturing employment, Germany still maintains a significant share, with 27 per cent of total employment attributed to the industrial sector.
While not indicative of deindustrialisation, the trend reflects a gradual migration of production activities. Klaus-Juergen Gern from the Kiel Institute for the World Economy acknowledges this trend, suggesting a permanent shift in production dynamics.
Timo Wollmershaeuser, an economist at the Ifo Institute, highlights labour shortages as a catalyst for automation, resulting in increased productivity despite declining employment figures.
As Germany navigates these challenges, policymakers and industry stakeholders are tasked with fostering innovation and competitiveness to sustain the country’s industrial strength in a rapidly evolving global landscape.
