German industry is laying off and moving production away from the country. Production costs are so high for many key companies that it is simply not worth it to stay. The Germans have resigned themselves to further market reforms, and the era of Germany’s prosperous export-driven economy is over. A mix of expensive energy, hard-to-fulfill climate commitments and stopped investments due to expensive financing froze development for a long time.
German Bundesbank fresh she stated, that Europe’s largest economy has once again fallen into a technical recession. Foreign demand for German goods is falling, domestic consumption remains depressed and corporate investment is hampered by high costs caused, among other things, by the European Central Bank’s record interest rates. The country’s industry suffered a major blow due to its heavy dependence on cheap Russian gas, which turned out to be a fatal mistake after the Russian invasion of Ukraine.
Due to the rapid shift away from stable energy sources in the form of nuclear and coal-fired power plants and the pressure on businesses to meet climate targets, energy costs have risen rapidly. Energy prices in Germany continue to remain higher than in other economies. However, all of Europe has much higher energy prices than the United States, which makes it much less competitive against them. So this applies not only to Germany.
Moreover, since German employers typically have high costs also due to high wages, the total production costs are often prohibitive for energy-intensive industries. Production stops paying. The Federal Republic of Germany is therefore experiencing the largest outflow of capital of all developed OECD countries, almost 70 percent of firms are moving their production away from the country. The Bloomberg agency therefore firmly states that the Germans will soon lose their status as an industrial power.
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The German agrochemical company BASF, one of the largest in the world, closed its fertilizer plant in Ludwigshafen almost a year ago and laid off 2,600 people. And even then the company’s CEO Martin Brudermüller stated that he is increasingly worried about the German domestic market. “Corporate profitability is nowhere near where it should be,” he said.
Germany has been facing problems and economic decline for a long time, and now it is only becoming more apparent how deep the whole problem is. Less than twenty years ago, the Germans started the labor market and the entire economy with major reforms. The potential of industrial enterprises grew because the demand for German cars and other engineering products, mainly from China, also grew. The Germans thus benefited from large exports and the economy prospered. However, according to observers, the long period of prosperity lulled the German government into a false sense of security, and no further reforms took place.
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In addition to BASF, companies such as Volkswagen, Siemens, Bosch, Bayer and Continental have also started to lay off employees en masse or move production to the USA or Asia. Last week, the Miele manufacturer just announced layoffs and relocation of home appliance production to neighboring Poland.
The German solution: additional subsidies
The German government plans to patch up the problems by pouring more money into businesses in the form of subsidies, which has already been approved by the European Commission. Energy-intensive companies from the chemical industry, steel industry or glass industry are to be officially subsidized for the transition to ecological production. The goal of becoming climate neutral is to be met by 2045. The companies are to receive a total of over 100 billion crowns for this.
So the plan is for businesses to “compensate for the additional costs of green production in sectors where it is currently not possible to produce climate-friendly while still being competitive”. But the loss of Germany’s competitiveness in industrial production and the loss of export orientation is something that has already started in full swing.
The already mentioned China is becoming an increasingly strong competitor, which is buying less and less German goods. The reason is on the one hand the slowdown of the Chinese economy, which leads to low interest in imports, but also the possibility to compete more cheaply in key sectors such as the production of electric cars. The Chinese invest heavily not only in components such as batteries, but also in the production of electric cars themselves. In addition, thanks to massive state investments, they are not fundamentally behind Western countries in terms of technology in production. In Europe, for example, there is interest in the Chinese MG4 electric car, which, in terms of affordability, is quite different from electric cars produced in Europe or the USA.
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2024-02-24 23:03:00
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