The sun is setting on Germany’s once-prolific industrial base as the country continues to grapple with a lingering energy crisis and wider economic malaise, Bloomberg News reported Saturday.
Many German manufacturing and industrial companies are looking to make future investments elsewhere, eliminating jobs and closing plants, thanks in large part to higher energy costs induced by the country’s embrace of green energy. Germany was once widely considered to be the economic powerhouse of Europe, but the years-long trend of decline in its manufacturing sector is now accelerating quickly as high energy costs, red tape and elevated inflation are blunting the sector’s competitive edge, according to Bloomberg News.
Germany’s manufacturing sector is responsible for about 20% of the country’s gross domestic product, according to Bloomberg News. While the Bundesbank, Germany’s central bank, rejects suggestions that full-scale deindustrialization is happening in the country and asserts that a decline in German manufacturing is unconcerning if it is gradual, industrial executives are singing a different tune.
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“Despite the motivation of our employees, we have arrived at a point where we can’t export truck tires from Germany at competitive prices,” Maria Röttger, who runs Michelin’s operations in northern Europe, told Bloomberg. “If Germany can’t export competitively in the international context, the country loses one of its biggest strengths.”
Her company is shuttering two of its factories in Germany and scaling down a third by the end of next year, and its American rival Goodyear is planning similar measures for two of its German facilities, according to Bloomberg. Approximately 10% of companies involved in the chemicals industry are planning to permanently stop production.
“There’s not a lot of hope, if I’m honest,” Stefan Klebert, CEO of GEA Group AG, a company that supplies manufacturing machinery, told Bloomberg News. “I am really uncertain that we can halt this trend. Many things would have to change very quickly.”
Germany’s November 2023 manufacturing Purchasing Managers’ Index (PMI), which is “a gauge of overall business conditions based on measures of new orders, output, employment, supplier delivery times and stocks of purchases,” indicate that executives across the entire sector are strongly pessimistic about the sector’s future prospects, according to S&P Global. Numerous other executives have consistently warned that the elevated commercial electricity costs in the country are making continued operations in Germany potentially untenable, according to Politico.
“We are no longer competitive,” German Finance Minister Christian Lindner remarked at a Bloomberg event in February. “We are getting poorer because we have no growth. We are falling behind.”
The country is aiming to have its energy supply and demand reach “net-zero” emissions by 2050, relying on sources like wind, solar and hydrogen fuels after former Prime Minister Angela Merkel decided in 2011 to eventually shutter the country’s nuclear power plant fleet. Despite the German government’s regulatory and spending blitz to spur the green transition, the country is not on track to meet its climate targets.
The meager economic outlook and energy crisis is also shaking up German politics. The Alternative for Germany (AfD), the country’s leading right-wing populist party, has seen its popularity more than double since the Russian invasion of Ukraine started, according to polling data aggregated by Politico.
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