German economy in ‘deepest crisis’ of post-war era: industry group

Dark clouds cover the sky over the headquarter of Deutsche Bank in Frankfurt, Germany, Sunday, July 7, 2019. (AP Photo/Michael Probst)

Germany’s economy is suffering its “deepest crisis” since the aftermath of World War II, an industry group warned Tuesday, calling on Chancellor Friedrich Merz’s government to take urgent action to spark a revival.

Europe’s biggest economy “is in free fall, but the federal government is not responding decisively enough,” said Peter Leibinger, president of the Federation of German Industries (BDI).

Germany is facing a perfect storm: high energy costs burdening manufacturers, weak demand for its exports in key markets, the emergence of China as an industrial rival and the U.S. tariff onslaught.

It has suffered two years of recession and is forecast to eke out only meagre growth in 2025.

The conservative Merz, who took power in May, has pledged to revive the eurozone’s traditional powerhouse, including through a public spending blitz on defence and infrastructure.

But industry leaders are increasingly voicing frustration that the efforts are moving too slowly and are insufficient to tackle a host of deep-rooted problems, from chronic labour shortages to heavy bureaucratic burdens.

“The economy is experiencing its deepest crisis since the founding of the federal republic, yet the federal government is not responding with sufficient determination,” said Leibinger.

“Germany now needs an economic policy turnaround with clear priorities for competitiveness and growth,” he added.

Heavy regulation, little innovation

Brian Fuerderer, head and founder of German high-tech surgical equipment maker Microqore Medical, agreed with the BDI’s assessment, saying the economy was being held back by overregulation and a lack of innovation.

“In Germany, entrepreneurship as such no longer really exists,” he told AFP.

“The car manufacturers are no longer leaders... And I think that’s where the first problem starts, that the spirit of innovation is no longer encouraged or desired.”

In its latest report released Tuesday, the BDI -- an umbrella association for many industry federations -- forecast that German factory output will fall two per cent in 2025, which would mark its fourth consecutive year of contraction.

Heavy industry, from car-making to producing factory equipment and steel, remains crucial to the German economy. The country is home to more than 100,000 manufacturing firms of varying sizes, employing over eight million people, according to the BDI.

But there has been a steady drumbeat of layoff announcements in recent times, particularly in the crisis-stricken auto sector, including carmaker Volkswagen and parts supplier Bosch.

Merz has defended his government’s actions, saying it will take time to get the economy back on track and pointing to reforms that have been enacted, including on lowering corporate income tax and reducing industry power costs.

There is some light on the horizon. The economy is expected to start picking up speed next year, driven by the spending ramp-up, with the government forecasting 1.3 per cent growth.

Some hope that the thousands of jobs being axed in the auto and other industrial sectors could be replaced by new roles in defence companies, which are hiring rapidly as European countries rearm to face the growing Russian threat.

But Hans Christoph Atzpodien, head of the BDSV defence industry association, warned that the sector’s growth could only partially offset the losses at carmakers.

“Of course, the quantities involved and the ways of working are different,” he told a press conference Tuesday, at an event organised by the economy and defence ministries.

“There are opportunities but it helps to be cautious about them.”