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Germany's industrial production expected to sink further

April 22, 2024

German industrial production is expected to fall further behind this year, after a dip in 2023. The usually strong manufacturing sector had already taken a hit because of higher energy prices.

Production line Volkswagen plant in Zwickau
Germany's manufacturing sector has long relied on low energy costs because of Russian importsImage: Sean Gallup/Getty Images

Industrial output from Europe's largest economy is expected to fall further this year, the leader of the Federal Association of German Industry (BDI) said on Monday at the Hanover Messe — one of the world's largest trade fairs.

Roughly two decades of outstanding economic success have been rooted in cheap Russian energy that became unavailable since Russia's full-scale invasion of Ukraine. The head of the BDI, a major lobby for German manufacturers, recently accused German Chancellor Olaf Scholz of underestimating the seriousness of the situation after an already depressed output for 2023.

How do the numbers stack up?

Higher energy prices and interest rates have raised costs and dampened investment in a manufacturing sector already grappling with supply chain problems and the aftermath of the COVID-19 pandemic, BDI President Siegfried Russwurm noted.

"We expect industrial production to decline by 1.5% compared to the previous year," said BDI President Russwurm.

The decline —  the same as last year — is symptomatic of a pattern, according to the business leader.

"Despite moderate recovery prospects, we must not deceive ourselves: Overall, production figures have been showing a worrying downward trend for years," said Russwurm.

Many of Germany's energy-intensive companies have suffered particularly from the sharp rise in energy prices since Russia's invasion of Ukraine. 

Are German industries on the decline?

High interest rates, which made investments more difficult, have also choked growth as businesses still struggle with delivery bottlenecks dating back to the coronavirus pandemic. 

Germany has responded to the energy crisis with relief packages for households and businesses. However, businesses are demanding "competitive and long-term plannable" energy prices, less bureaucracy, and lower taxes.

"What the federal government has done so far is all very well, but it’s just not enough," said Russwurm. "We need competitive and long-term planning for energy prices."

rc/wmr (AFP, Reuters)

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