German industry employed around 496,000 fewer people on German soil at the end of 2025 than in 2019, a drop of 7.1 per cent, according to research by the Ifo Institute. Ifo also found that industrial output in Germany fell by 13 per cent between 2018 and 2024. And it will most likely keep falling.
The gradual retreat of German manufacturing, which many describe as slow deindustrialisation, began before the energy crisis triggered by Russia’s invasion of Ukraine and the drastic cut in the use of cheap Russian gas. And it certainly began before the new energy crisis that followed the US-Israeli attack on Iran.
The same studies date the start of the fall in German industrial output to the major economic crisis that followed 2010, which squeezed consumption first and then, gradually, investment. Over the same period, and right up to today, competition from Chinese industry has grown far fiercer, alongside the boom in artificial intelligence. It is a field in which the EU is lagging behind.
Energy costs, however, are a heavy weight on German industry. Official figures show that energy in Germany costs around 23 per cent more than the EU average for industrial (non-household) use. Only Ireland and Cyprus pay more for industrial electricity. The loss of cheap Russian pipeline gas has added heavily to that bill, though it is not the only factor. Professor Poullikkas’s article on page 49 looks at the dysfunction of the EU electricity market.
Ifo’s figures show that the car industry, for years the backbone of German manufacturing, has been hit hard in recent years, with 123,500 fewer jobs, a fall of 13 per cent. Page 54 of this edition shows how many German carmakers have announced job cuts. The metal industry has also lost 115,600 workers, while 64,500 jobs have gone in mechanical engineering.
What deeply troubles the German authorities and the European Commission is that the decline of German industry is not seen as a temporary loss of momentum or demand. It is seen as a persistent fall in performance and prospects lasting several years, and one that goes hand in hand with an inability to mount any serious recovery.
Worse still, there is a clear trend of investment in factories in Germany being put on hold, or shifted to other European countries or out of Europe altogether. Volkswagen’s divestments are among the most recent examples. So are those of chemical giants BASF and Dow, and of Goodyear and Michelin in tyres.
Germany accounted for 23.8 per cent of the EU’s GDP in 2025, and more than half of the bloc’s member states export most of their products to Germany. It is clear, then, that German industry’s structural inability to stand up to foreign competition is hurting the entire EU.
The Commission’s grandly titled ‘Competitiveness Compass’, unveiled in 2025, set out a string of non-negotiable goals. Among them: supporting industry by cutting energy costs (yet things are getting worse, not better); building a formal preference into European markets for products made largely within the EU; further promoting the production and use of clean energy; unifying capital markets; putting to work the several trillion euros Europeans have sitting in deposits rather than invested in the markets; and simplifying regulation, to name but a few.
How quickly and effectively these plans are delivered is being scrutinised and questioned.
As long as the EU keeps missing its targets, the ‘German’ problem will keep growing and will affect member states and their societies more and more.
