De-industrialization Accelerating in Germany at an Alarming Rate

The industrial overview for March issued by the German Economy Ministry shows an alarming drop in industrial output, as well as of new orders. The automotive industry accounts for a particularly large share of the decline, with a 6.5% decrease in production compared to the previous month. The construction sector was down by 4.6%, the machine builders by 3.4%, and the chemical industry by 2.0%. As for the new contracts, the decline was 10.7% compared to the previous month – which is as much as over the entire three years (!) since the beginning of the Covid pandemic and the related industrial shutdowns in April 2020.

Apart from international reasons, the decline in industrial production in Germany is home-grown, due to the combined effect of price inflation for raw materials and energy, and the drastic reduction in CO2 emissions, which is mainly achieved through production shutdowns. Since the emissions reductions are here to stay, given the government’s “green” obsessions, German industry output may fall by 20% or more by the end of the year. Unable to meet the rising costs, many companies will become targets for takeovers by foreign investor groups.

As that implies the loss of millions of highly-skilled jobs, the Chairman of the Metal Workers Union, Jörg Hofmann, has warned of the loss of national competence in industrial manufacturing. In an interview with the April 30 Bild am Sonntag, he said that the spectacular sale of the leading German heat pump manufacturer Viessmann to a U.S. firm poses the “real danger that Germany will go from being a driver of innovation to becoming the workbench of the world”. (That same deal was praised by assistant Economy Minister Franziska Brantner, who exclaimed: “Great! In fact, a transatlantic climate champion is being built!… A partner who brings know-how and capital, that’s positive.”)

Hofmann is further quoted on the loss of Germany’s pioneering position in machine-building: “There were times when there was hardly a factory floor without German technology. German machines were indispensable for the production of batteries, solar systems or semiconductors. But now, the U.S. firm Intel is building a chip factory in Magdeburg, and Northvolt is planning a battery factory near Heide, but the production facilities are expected to be mainly equipped with Asian machines.”

Adding to the problem, should the European Commission now decide to impose sanctions against Chinese companies that do business with Russia, it will also affect German cooperation with leading Chinese companies in the high-tech sector. Given the dependency on chips and electronic components produced in China, the automotive and machine-building sectors in particular will not be able to maintain production at the already reduced levels, and large-scale layoffs will not be avoided.