Shocking Situation Report: Industry Sounds the Alarm - Germany Must Reinvent Itself

The German industry sounds the alarm. It sees Germany as a location more under pressure than ever before. Around one-fifth of industrial value creation is threatened, according to a study commissioned by the Federation of German Industries (BDI). To remain internationally competitive in the future, private and public additional investments totaling 1.4 trillion euros by 2030 are required. 

BDI President Siegfried Russwurm spoke of a shocking situation in Berlin on Tuesday. Germany has fallen behind almost everywhere in recent years in an international comparison and has a fundamental location problem.

"The risk of de-industrialization through the quiet migration and abandonment of many medium-sized companies is continuously increasing and has partly already occurred."

Industry wake-up call

On behalf of the BDI, the strategy consulting firm Boston Consulting Group and the Institute of the German Economy (IW) presented a broad analysis of the weaknesses and opportunities of German industry with millions of employees. The results are alarming from the industry's perspective, similar to a report by former Italian Prime Minister and ECB chief Mario Draghi on the situation in the EU. Draghi wrote that the European economy needs to become significantly more innovative to avoid losing ground in the competition with the USA or China. 

The BDI described the results of its study as a wake-up call. "The problems in the country are piling up," said Russwurm. The industry contributes around 20 percent of gross value added, significantly more to the country's prosperity than in most other developed economies.

"But currently, Germany's business model is in serious danger."

Many deficits: high energy prices, poor transport infrastructure

Russwurm cited higher energy prices in international comparison, a dilapidated transport infrastructure, an uncompetitive tax system, and political uncertainties. In addition, there are high labor costs, increasing labor shortages, burgeoning bureaucracy, too slow expansion of power grids, and sluggish digitization. 

Example: The fiber optic coverage necessary for the most advanced digital applications falls far behind other countries. With currently only 39 percent of companies reached, Germany lags far behind countries like Spain or France.

"Germany's digital infrastructure is thus poorly prepared for the upcoming AI revolution," the study says.

Pillars are shaken 

Unlike in the past, these competitive disadvantages can be compensated less and less by the traditional strengths of the German industry - productivity and innovations. And: "Several pillars of the previous success of German industry are simultaneously shaken: The era of cheap fossil gas imports is probably over for the foreseeable future with the Russian invasion of Ukraine." Furthermore, an advantage in areas such as combustion technology is losing importance. Especially the German automotive industry and companies in fossil plant engineering face a significantly shrinking world market for their core technologies.

"Without decisive counteraction, Germany faces a scenario of gradual deindustrialization, where energy-intensive industrial sectors gradually shift their production to other locations, the automotive industry significantly loses its world market share in electromobility, and German companies fall behind in future technologies."

IW Director Michael Hüther said, referring to the close interconnection of industrial sectors, that in crisis situations, the weakness of a single sector could endanger value creation broadly.

Industrial nation must reinvent itself

Russwurm called on politics for a "big move" to bring Germany forward again in international competition and achieve goals in the climate-friendly transformation of the economy. Industries such as the steel industry need to change their production processes. Germany must reinvent itself as an industrial nation, the study says. The restructuring requires one of the greatest transformation efforts since the post-war period.