Sebastian Matthes is Editor-in-Chief of the Handelsblatt.
The warnings in the past few months could hardly have been more alarming: “It’s burning like hell,” said BDI President Siegfried Russwurm, referring to the energy crisis. The industrial core of Germany is in danger, assisted Wolfgang Grosse Entrup, General Manager of the German Chemical Industry Association (VCI). And the President of the Schwerin Chamber of Industry and Commerce, Matthias Belke, even considered a “fatal heart attack” in the economy to be possible.
At the end of this week we can state: German industry has survived all the “fires” and “heart attacks” for the time being. Compared to the previous year, industrial production increased by 0.8 percent, the pharmaceutical industry produced nine percent more. Vehicle construction even recorded an increase of 13.9 percent.
And in the rest of the EU, too, industrial companies have increased their production surprisingly significantly in recent months: never before have they produced so much. We could leave it at that and go into the weekend with peace of mind.
But things are not that simple, as a look at some other figures from the past few weeks shows. Accordingly, in addition to the acute crises surrounding gas and supply chains, a large number of structural crises are building up in the background – and in the long term they could change the economy far more than any gas savings program. In the worst case, they even trigger a veritable downward spiral.
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On the one hand there is China, which economically is only a shadow of itself – not only because of the downright negligent and scientifically distant corona policy. Chinese exports fell 8.7 percent year-on-year in November — more than twice as much as feared.
China as a pillar of the global economy is no longer available
The country is on the brink of recession. As a result, China as the mainstay of the global economy will fail for the time being. A heavy blow, especially for the China-dependent German industry.
Added to this is the structural change that has been overslept by many sectors in Germany. The car industry, for example, which is now hastily investing billions in software, is not really doing well in the important Chinese market, even with the latest models. The current e-cars from Germany simply no longer meet the digital demands of Asian consumers. Chinese manufacturers are much further along.
In terms of quality, Chinese electric cars are now up to par.
(Photo: Reuters)
At the same time, many industrial companies suffer from high costs. What is often overlooked in the current discussion is that companies in Germany were already in an energy crisis before the start of the Ukraine war, and electricity was nowhere else that expensive before. The gas crisis only exacerbates the problem. And that affects all those companies that are in international competition and cannot pass on their costs.
It’s no wonder that many companies are now orienting themselves towards the west. Many are becoming increasingly involved in the USA, where energy prices and taxes are low. A current DIHK survey shows that 40 percent of German chemical and pharmaceutical companies want to invest more there in the next few months.
German companies invest less in their future
In Europe, meanwhile, they are holding back. The neo-protectionist policies of the Americans are likely to reinforce this trend. In the meantime, representatives of US authorities are already approaching German energy start-ups directly and trying to persuade them to relocate their business to the USA.
The high energy costs have further consequences: German companies invest less in their future. For example, spending on research and development in the EU rose by four percent compared to the pre-Corona period. In Germany, spending was 0.8 percent below the 2019 level. Research and development are the basis of the much-vaunted efficiency revolution, the boom in green tech and economical machines.
What is the lesson from these findings? A little less alarmism in the short term, but more energy on what long-term, substantial reforms are needed to maintain Germany’s competitiveness. The risks are undoubtedly great, and they will remain when the war is over.
It’s a bit like Deutsche Bahn: For years, the managers trimmed the company for efficiency and good quarterly results. In the end it turned out that they were only consuming substance – at the expense of their own future.
More: China is relaxing the corona restrictions – no reason to sound the all-clear