Bloomberg published an interesting article on February 10. The article argues that Germany's industrial base is on the verge of a total collapse and that Germany's days as an industrial hegemon are numbered. The translation is as follows, I hope you enjoy it:
Political paralysis looms over Berlin, and the energy crisis is the final blow for a growing number of businesses
Last autumn, in a spacious production hall in Düsseldorf, the somber tone of a horn player accompanied the final act of a century-old factory.
Amid the flickering of flares, the last product of the mill – the steel pipe – was polished into a perfect cylinder on the rolling mill, where many of the 1,600 unemployed stood with solemn faces. The plant, which began production for 124 years at the height of Germany's industrialization, did not stop work during two world wars, but ultimately did not survive the aftermath of the energy crisis.
Over the past year, such incidents have been repeated, underlining the painful reality that Germany is facing: its days as an industrial hegemon may be coming to an end. Manufacturing output in Europe's largest economy has been on a downward trend since 2017 and is accelerating as competitiveness weakens.
Stefan Klebert, CEO of GEA Group AG, a supplier of manufacturing machinery that dates back to the end of the 19th century, said: "To be honest, there is not much hope. "I'm not really sure if we can stop this trend. Many things have to change quickly."
The foundations of the German industrial machine fell like dominoes. The United States is drifting away from Europe and is trying to compete with its transatlantic allies for climate investment. China is becoming a bigger competitor and is no longer an insatiable buyer of German goods. For some heavy manufacturers, the final blow is the end of large quantities of cheap Russian gas.
In addition to the global turmoil, Berlin's political paralysis has exacerbated long-standing domestic problems such as crippled infrastructure, an aging workforce, and bureaucracy. The education system, once Berlin's strong point, is now emblematic of a chronic lack of investment in public services. The Ifo Institute estimates that by the end of the century, the decline in mathematical skills will cost the economy about 14 trillion euros ($15 trillion) in lost output.
In some cases, the downturn is small, imperceptible, such as scaling back expansion and investment plans. Others, such as shifting production lines and laying off employees, are more pronounced. In extreme cases, such as the collapse of Vallourec SACA's pipe mill, which was part of the declining industrial giant Mannesmann.
Wolfgang Freitag at the Valloureck plant in Düsseldorf on January 19
Wolfgang Freitag said: "The impact is too great to describe". Now 59, his job now is to disassemble equipment for sale and help old colleagues find new jobs.
Germany still has an enviable pool of small, flexible manufacturers, and the Bundesbank and other institutions refuse to accept the talk of full deindustrialization. But with reforms stalled, it's unclear how the recession can be slowed.
Treasury Secretary Christian Lindner told a Bloomberg event earlier this month: "We are no longer competitive. We are getting poorer and poorer because we are not growing. We are falling behind. “
Christian Lindner speaks at a Bloomberg event in Frankfurt on February 5.
In mid-November, Chancellor Olaf Scholz's fractured coalition plunged further into chaos as a budget crisis triggered by a court ruling on borrowing measures left the government with little money left to invest.
Volker Treier, head of foreign trade at the German Chamber of Commerce and Industry, said: "You don't have to be a pessimist to see that what we are doing at the moment is not enough. "The pace of structural change is incredibly slow".
Disappointment is widespread. While hundreds of thousands of people have taken to the streets in recent weeks to protest far-right extremism, the anti-immigrant right-wing Alternative for Germany (AfD) leads all three ruling parties in the polls and only lags behind the Conservative bloc.
Maria Röttger, head of Michelin's Nordic region, said the decline in industrial competitiveness threatened to send Germany into a downward spiral. The French tyre maker will close two German factories and scale back a third by the end of 2025, a move that will affect more than 1,500 workers. American rival Goodyear has similar plans.
"Despite the high motivation of our employees, we have reached the point where we cannot export truck tires from Germany at competitive prices," she said in an interview. "If Germany cannot export internationally at competitive prices, then Germany loses one of its greatest advantages".
Continental's manufacturing facility in Frankfurt. The auto parts maker plans to close a parts plant near Wolfsburg due to falling demand.
Other examples of recession are also frequent. GEA is closing a pump plant near Mainz in favor of a new plant in Poland. Auto parts maker Continental AG announced in July that it planned to abandon a plant that made components for safety and braking systems. Rival Robert Bosch GmbH is laying off thousands of workers.
The energy crisis in the summer of 2022 was an important catalyst. While worst-case scenarios such as freezing for ordinary households and energy rationing have been avoided, prices are still higher than in other economies, increasing the cost of rising wages and regulatory complexity.
The cost of electricity for German companies is among the highest even within the European Union
One of the most affected industries is the chemical industry, which is also a direct consequence of Germany's loss of cheap Russian gas. According to a recent survey by the VCI Industry Association, nearly 1 in 10 companies plan to stop production permanently as the transition to clean hydrogen remains uncertain. BASF SE, Europe's largest chemical producer, will cut 2,600 jobs, and Lanxess AG will cut 7 percent.
Even if a handful of companies are brave enough to invest in expansion, Germany's sluggish bureaucracy has not kept pace. GEA has installed a solar power plant at a plant in Oelde, a small town in western Germany, which produces equipment for separating cream from milk. In January last year, the company applied for a power permit two months before construction began, but is still awaiting approval almost two years after starting the project.
BASF's plant in Ludwigshafen, the chemical company plans to lay off 2,600 jobs in Germany as a result of the loss of cheap Russian natural gas.
German automakers have been waiting for months for chips and other components, with disruptions caused by the pandemic that have brought assembly lines to a standstill and energy sources to follow, highlighting the risks of relying on distant supply chain networks, especially in Asia.
At present, China is causing problems for Germany in many ways. In addition to the strategic shift to advanced manufacturing, the slowdown in the Asian superpower's economy is further weakening demand for German goods. At the same time, cheap competition from China is also worrying Germany's key industries for the climate transition, not just electric vehicles.
Solar panel makers are shutting down operations and laying off workers because they can't afford to compete with state-backed Chinese rivals. Detlef Neuhaus, chief executive of Dresden-based Solarwatt GmbH, said the company had already laid off 10 percent of its workforce and could move production abroad if the situation did not improve this year.
Germany's needs to adapt to the headwinds in the market. For fan and ventilation manufacturer EBM-Papst, the industrial crisis meant acquiring a troubled supplier.
To maintain flexibility, the company will shift production to heat pumps and data center components, rather than fan components used in cars. The company also wants to move some administrative work to Eastern Europe or India.
CEO Klaus Geisdorf said in an interview: "It's not just about energy. "It's also about the electricity supply in Germany, which is very tight right now," he said. He added that within a decade, Germany's working-age population will be reduced to the point where it will not be able to sustain the current economy.
Old equipment at the Vallourec plant.
In a September report, the Bundesbank argued that the decline in manufacturing (which accounts for less than 20% of the economy, almost twice as much as the United States) is not a cause for concern if it is gradual.
This trend could mean the end of a basic manufacturer like the Düsseldorf Tube Mill. Freitag is a member of the mill's collective management committee and is currently helping to prepare for the sale of the 90-hectare site. "A lot of the equipment will end up in the scrap yard, and it makes my heart and eyes water," he said. ”