Germany, the EU’s economic engine, faces an unprecedented convergence of crises across its flagship industries, including automotive, chemicals, and engineering. The country’s economy has been slowing for years, with annual GDP shrinking steadily since 2021, and no quarterly real GDP growth since then. Manufacturing, once the pride of the German economy, has taken a steep downturn; in September, industrial output had fallen 16% from its peak in 2017, according to the latest available data. This economic contraction has left many of Germany’s largest firms grappling with severe restructuring needs, and demand for turnaround services has hit record highs.
The automotive sector, a cornerstone of German industry, is experiencing deep-rooted issues. Volkswagen recently made headlines with its first-ever contemplation of plant closures on home soil. This move reflects the broader trend in German car manufacturing, where domestic vehicle production has fallen sharply. The German Automotive Industry Association (VDA) reported that production peaked in 2016 at 5.7 million vehicles, but fell to 4.1 million in 2023—a drop of over 25%. Job losses in the industry are equally stark, with 64,000 automotive roles disappearing since 2018 and more cuts looming as the industry transitions to electric vehicles (EVs). These changes present enormous challenges, particularly for the country’s network of auto parts suppliers who face the risk of obsolescence as EVs require far fewer components than traditional cars.
Economists attribute Germany’s economic malaise to high labor and energy costs, corporate taxes, and regulatory obstacles. Following the 2022 energy crisis spurred by Russia’s invasion of Ukraine, energy prices soared, making production even more costly and forcing some industrial sites to close. Chemical production, an industry closely tied to energy costs, is down 18% since 2018. Despite recent energy price relief, Germany still grapples with prices three times higher than pre-war levels, putting it at a disadvantage compared to global competitors.
Germany’s government is also facing significant political challenges. Chancellor Olaf Scholz’s coalition—a fragile alliance of social democrats, greens, and liberals—has been marked by constant policy disagreements, with growing speculation of its potential collapse. In this power vacuum, populist parties, such as the far-right Alternative for Germany, have surged in popularity, contributing to political instability. Political analysts warn that this instability, if not addressed, could undermine Germany’s capacity to enact effective economic reforms during a critical period.