Heller has been making crankshaft machines at its base in southwestern Germany for almost 130 years, but like many mid-sized manufacturers, chairman Klaus Winkler is losing confidence in his country’s competitiveness.
In addition to taxes and fees that have long been among the highest in Europe, companies like his now face high energy costs and a workforce that works the shortest hours in OECD countries.
“Nobody works less than Germans,” he said, adding that the quality of apprenticeship candidates is “far below what we got ten years ago.”
German industry has gone from the powerhouse of the European economy to one of the worst performers in the region following a series of shocks, including the disruption of global supply chains by the pandemic and the power crisis unleashed by the massive invasion of Ukraine by Russia.
These setbacks have exacerbated long-standing structural problems, including labor shortages, rising trade barriers, increased bureaucracy and a lack of investment in transportation, education and digital infrastructure.
Industrial production in the country fell by 2.1 percent in July compared to a year ago. This continued a decline that has reduced the sector’s output by 12.2 percent since the start of 2018. Germany’s most energy-intensive sectors suffered an even bigger drop of 20 percent.
“There is a cyclical downturn. Then there are the structural problems,” said Clemens Fuest, president of the Ifo Institute in Munich, one of Germany’s leading economic research institutions. “This is the combination that leads to the gloom we see today.”
Economists like him worry that the industrial fabric of Europe’s largest economy is in danger of being slowly eaten away as more companies move production and investment abroad.
In line with that, Winkler told the Financial Times that Heller planned to reduce dependence on Germany and build more of a presence in Asia and the US. The manufacturer of crankshaft machinery, a key component of petrol and diesel engines, is even planning to expand its UK base in the Midlands town of Redditch, despite the complications of Brexit, due to its ‘major competitive advantages’ in the field of lower labor costs compared to its head office in Nürtingen.
Others are taking similar steps, with figures from the German Chamber of Commerce and Industry showing that almost a third of companies surveyed chose investment abroad over domestic expansion.
“I don’t want to talk bad about Germany, but it feels like everything here is a bit boring,” says Gert Röder, the sixth generation of his family to run a 208-year-old aluminum foundry in Soltau, Germany. the North.
Most of its investments this year would go to an existing plant in the Czech Republic, which – unlike Germany – has chosen not to phase out nuclear power, making energy costs slightly cheaper. “They also have a large labor force,” he added.
Economists are concerned about the ability of politicians to take strong action, with Fuest pointing to divisions in the coalition government, led by Chancellor Olaf Scholz, over whether to introduce a subsidized electricity price for energy-intensive industries.
There are many concerns about the government’s decision to prioritize sectors such as semiconductors and construction, both of which have received billions of euros in subsidies and tax breaks, over its traditional expertise in areas such as chemicals, which are suffering greatly from the rise in energy costs.
BASF, the world’s largest chemical company, has opted to build a new 10 billion euro petrochemical plant in China while downsizing its sprawling headquarters on the banks of the Rhine in Ludwigshafen.
“Companies do not understand why Germany heavily subsidizes some sectors, such as chips, but seems willing to let other sectors go,” Fuest said.
The German automaker’s prowess is also threatened by China. The Asian economy’s success in producing electric vehicles has led to the country last year overtaking Germany as the world’s second-largest exporter of cars by volume.
While foreign sales have risen overall, business with China – a major source of growth in recent decades – has collapsed.
Shipments to the second-largest export market after the US fell 8.1 percent in the first seven months of this year compared to the same period in 2022.
The uncertainty surrounding Germany’s political and economic ties with China has raised concerns about how well the export-dependent sector can do in the coming years.
BASF reported a nearly 60 percent drop in second-quarter profit from a year earlier, citing China’s weakening economy as a major factor. The German downturn has weighed on the rest of the eurozone, where official data on Wednesday showed industrial production fell 1.1 percent in July from the previous month and 2.2 percent from a year ago.
Others think the gloom is exaggerated.
Some sectors – especially defense – are experiencing unprecedented demand, with companies such as Rheinmetall and Renk posting record figures as the war in Ukraine has driven up military spending across Europe.
Markus Krebber, CEO of energy group RWE, which raised its profit outlook in July on strong performance as Germany’s largest energy producer, said he disagreed with the current “alarmist” tone. “There are challenges and we have to address them. But I do not share this overall negative view,” he said.
Krebber, who is also a member of an advisory board of Germany’s largest business association, the BDI, called for an end to “short-term activism” focused on subsidies for certain sectors in favor of reforms that enable longer-term growth.
“Let’s talk about the tax system, let’s reduce bureaucracy. We must push for digitalization, and also bring skilled workers to Germany and improve our education system,” he said.
Despite all the chaos that accompanied Scholz’s coalition, there was no “major difference” between the effectiveness of the German government’s industrial policy and that of its European counterparts.
“Many of the problems in Germany are solvable,” Fuest said. “So let’s get started and do it.”