The Week That Was in Europe Is Germany’s Industrial Slowdown About to Spiral?
Feb 15, 2025
Germany's industrial sector faces a troubling decline, with manufacturing activity decreasing since 2018. The conversation reveals potential 'cluster effects' that may worsen the situation, as well as the consequences of supply chain disruptions and rising geopolitical tensions. The shift to electric vehicles and competition from China present significant challenges. Insights from economic theory, particularly regarding production networks, shed light on these cascading risks and the urgent need for a strategic response to maintain Germany's industrial strength.
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German Manufacturing Decline
- German manufacturing production shows a steady downward trend since 2018, dropping 17% from its pre-pandemic peak.
- This decline is evident across various sub-sectors, including cars, chemicals, machinery, and steel.
Value-Added and Supply Chains
- While production figures overstate the decline due to double-counting, value-added data confirms the negative trend.
- German manufacturing companies have reduced outsourcing and shortened supply chains, likely to mitigate risks.
Manufacturing's Significance
- Germany's manufacturing sector remains significant, comprising 23% of total value-added, double that of the US.
- About 10% of Germany's service sector value-added is directly tied to industry, highlighting manufacturing's importance.