In recent months, many have raised concern over the fate of Germany’s industrial economy, once celebrated for its robust engineering and high-volume exports. Central to its economic success was a steady flow of affordable Russian gas, vital for its energy-intensive industries. However, the current climate, marked by a recession lasting two years and job losses, raises alarm bells about the viability of this model, especially in light of upcoming elections on February 23, where leaders like Friedrich Merz will face significant challenges.
Job losses loom large over the economy, with Porsche announcing layoffs of 1,900 workers and porcelain firm Rosenthal shuttering one factory. Since the onset of the COVID pandemic, Germany is down nearly a quarter of a million manufacturing jobs, with unemployment expected to rise beyond three million soon. Klaus Wohlrabe from the ifo Centre highlights the increasing anxiety that accompanies persistent job insecurity and spending caution among consumers.
Rooted in uncertainty, the German business landscape is hampered by a lack of clarity about future government policies as a transition unfolds. Companies are putting investments on hold, mirroring consumer hesitance to spend amid fears of job loss. Compounding this uncertainty are global shifts in political alliances, particularly with the unpredictable stance of the US under President Trump, leaving businesses on edge about potential tariffs and trade impacts.
Declining industrial production compounds these worries, highlighted by a 4.5% drop last year, especially affecting the automobile and machinery sectors. Investigating further, Klaus-Jürgen Gern identifies regulatory burdens and a decline in infrastructure as home-grown issues, while the looming skill shortage, exacerbated by the retirement of the baby boomer generation, threatens to slow potential growth significantly.
Germany’s energy costs pose yet another hurdle, once reliant on low-cost Russian gas that has now been severed due to geopolitical strife. The transition to alternative, more expensive energy sources has driven costs higher, with industry increasingly seeking locations with cheaper electricity. Conall Heussaff outlines the connection between escalating gas prices and soaring electricity costs, prompting businesses to reconsider their operational bases.
Additionally, the rise of Chinese manufacturing poses stiff competition, transforming from a market reliant on German exports to one that challenges them directly. To reclaim competitiveness, Wohlrabe recommends a focus on prioritising investments in education, infrastructure, and security, coupled with a diversified energy supply. Improvements to the business environment through lower corporate taxes and reducing bureaucratic red tape will also be essential in revitalising the industry, says Klaus-Jürgen Gern.
Amid fears of deindustrialisation, Germany’s economy is experiencing a recession and rising unemployment, worsened by the loss of cheap Russian gas and increased competition from China. Key industries are struggling due to uncertain government policies and a lack of skilled workers as baby boomers retire. Experts recommend boosting investment in education, infrastructure, and creating a more conducive business climate to revive Germany’s industrial base.
Germany’s industrial economic model is under significant strain from multiple fronts, including rising unemployment, increasing energy costs, and fierce global competition. The uncertainty surrounding future government policies further complicates the landscape, pushing businesses to hold back investments. Moving forward, strategic investments in infrastructure, education, and a more diversified energy policy will be crucial in revitalising the economy and attracting foreign talent to offset the skills gap caused by demographic changes.
Original Source: www.dw.com
