- "Alarming Image Surfaces": The Sector's Concerns Being Raised
Warning signals echo in German industry. It's experiencing more strain than ever before, with around 20% of its industrial worth at risk, as per a study sponsored by the Federation of German Industries (BDI). To maintain its global competitiveness by 2030, an extra 1.4 trillion euros in public and private investments are required.
On Tuesday in Berlin, BDI President Siegfried Russwurm painted a grim picture. Germany has slipped behind in almost all spheres compared to other nations in recent years, and has a fundamental location issue. The threat of deindustrialization through the silent departure and abandonment of numerous small and medium-sized enterprises is rising steadily.
Siren for industry
On Tuesday, the BDI, along with strategy consultancy Boston Consulting Group and the Institute of the German Economy (IW), revealed an extensive analysis that highlights both the German industry's strengths and opportunities, with millions of employees. The findings are as troubling for the industry as a report by former Italian Prime Minister and ECB President Mario Draghi on the EU's situation. Draghi warned that the European economy needs to become significantly more innovative to avoid losing out in competition with the USA or China.
The BDI denotes the findings as a wake-up call. "The problems in the country are multiplying," said Russwurm. The industry contributes significantly more to the nation's prosperity, with around 20% of the Gross Value Added, than most other developed economies. "However, presently, Germany's business model is in grave danger."
Numerous shortcomings
Russwurm pointed out escalating energy prices, worn-out transport infrastructure, a non-competitive tax system, and political uncertainties. Added to these are high labor costs, a growing labor shortage, excessive bureaucracy, slow development of power grids, and slow digitization.
Namely, the coverage of glass fiber for modern digital applications in Germany is significantly behind other nations. With a current coverage of only 39%, German companies lag behind countries like Spain or France in this regard. "Germany's digital infrastructure is hence poorly equipped for the approaching AI revolution," the study concludes.
Wobbling foundations
Unlike before, these competitive disadvantages can no longer be balanced by the traditional strengths of the German industry - productivity and innovation. Moreover, "several pillars of Germany's industrial success have simultaneously weakened: The era of cheaper fossil gas imports is likely over for the foreseeable future due to the Russian attack on Ukraine." It's also stated that an advantage in fields such as internal combustion engine technology is losing significance.
Primarily, the German automotive industry and firms in the fossil power sector face a substantially shrinking global market for their core technologies. Without urgent measures, Germany faces a scenario of gradual deindustrialization, with energy-intensive industrial sectors progressively shifting their production to other locations, the automotive sector losing significant market share in electromobility, and German companies lagging behind in future technologies.
IW Director Michael Hüther said, in reference to the interconnectedness of industrial sectors, that the weakness of a single branch could endanger overall value creation in crisis situations.
Russwurm called for a "major initiative" in policy to propel Germany forward in global competition and achieve climate-friendly economic transformation goals. Industries like steel need to adjust their production processes.
Germany must reinvent itself as an industrial nation, according to the study. This transformation necessitates one of the greatest efforts since the post-war period.
High Prices
Russwurm described the mentioned 1.4 trillion euros in investments as "an astronomical sum of money". However, failing to transform would be even more expensive. Specifically, the sum involves significant investments in infrastructure, education, and buildings - as well as reducing dependencies in critical product supply chains and "greening" industry.
More than two-thirds of the 1.4 trillion euros would be private investments, but there are currently insufficient state incentives to induce companies to invest. Nevertheless, Germany has a strong starting position in areas like climate technologies, industrial automation, and health to build new industrial value creation.
Government Plans Insufficient
The economy is currently experiencing a growth slump. The federal government is working on implementing a "growth initiative" - plans include improving investment depreciation, reducing bureaucracy, and incentives for longer working hours. However, the BDI finds these plans inadequate. The association calls for fundamental reforms, such as in taxes and energy. For instance, energy-intensive industry needs targeted financial support and better access to low-CO2 energy sources.
The BDI's warnings echo a potential future where Germany faces gradual deindustrialization, with several sectors shifting production overseas and the country lagging behind in future technologies. To avoid this future scenario, a significant investment of 1.4 trillion euros is required by 2030 to generate innovative growth and transform Germany into a sustainable industrial powerhouse.
