By Ryan Hogg
Germany’s economy has watched some of its largest companies vote with their feet and dollars since its manufacturing industry entered recession more than two years ago. Now, Volkswagen and Intel are poised to add more pain to the country’s coffers in what looks increasingly like a doom loop for the embattled country.
Volkswagen, the jewel in Germany’s industrial crown, is turning sour on its native home, which it sees as compounding its struggle to expand its profit margins.
For the first time in its 87-year history, Volkswagen is considering shutting down plants in Germany, where it employs around 300,000 people, as the company ramps up efforts to save €10 billion in costs.
In a statement on Monday, Volkswagen CEO Oliver Blume decried Germany’s falling industrial clout and its effect on his automaker, which is battling slow EV uptake, falling consumer demand, and the ominous threat of cheap Chinese EVs.
“The economic environment has become even tougher and new players are pushing into Europe,” Blume said in a statement on Monday. “Germany in particular as a manufacturing location is falling further behind in terms of competitiveness.
“In this environment, we as a company must now act decisively.”
The German problem
Indeed, Germany’s manufacturing outlook is bleak, leaving the country’s chancellor, Olaf Scholz, in an existential bind.
Germany’s manufacturing sector has been in recession since early 2022, battered by the loss of cheap Russian energy following the country’s invasion of Ukraine, a fall-off in demand in its key export market of China, and declining consumer confidence in its own country.
In August, Germany’s manufacturing PMI, which hasn’t experienced growth for more than two years, fell to a five-month low of 42.4, contrasting with a global uptick in manufacturing output. Any figure lower than 50 is marked as a contraction.
“The recession in Germany’s manufacturing sector is dragging on way longer than anyone expected,” said Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. “August saw an even steeper drop in incoming orders, killing off any hope for a quick bounce-back.
“Normally, over the last 30 years, the industry has managed to recover within a maximum of 20 months of a recession starting. But this time, things are different, and China seems to be the main culprit,” de la Rubia added.
“The country is stepping up its game, competing head to head with German industrial companies—not just in China, but also in Germany and in other key markets, especially in the automotive and mechanical engineering sectors.”
Source: Fortune.com