Germany has lost nearly 250,000 jobs in the manufacturing sector since the onset of the COVID-19 pandemic.
The decline in manufacturing jobs appears to have been obscured by a broader shift in employment trends.
According to Bundesbank data, the number of jobs in Germany rose by 4.8% between early 2020 and November of the previous year. This increase was driven by growth in service sectors, including real estate, healthcare, communications, and public administration.
However, among the most severely affected industrial sectors, such as automotive industry suppliers, the losses were substantial. The German Association of the Automotive Industry (VDA), an industry group, reported that approximately 11,000 jobs were lost last year alone among German car suppliers, marking them as one of the first sectors to announce layoffs as car production started to decrease.
Gesamtmetall, the lobby group for employers in the metal and electrical industries, has cautioned about further job reductions. They estimate that up to 300,000 more of its members could be made redundant within the next five years, representing a decline of about 7%.
Declining values of industrial companies in the DAX
The contraction of German industry is also reflected in the decreasing market capitalization of the sector. According to the Financial Times (FT), DAX constituents Volkswagen, Thyssenkrupp, and BASF have lost €50 billion, or 34%, of their market value over the last five years.
From 2010 to 2014, automakers in the DAX index were, on average, valued higher than their peers in other sectors. However, as demand started to stagnate, valuations declined.
VW’s deliveries to customers last year decreased by almost a fifth compared to 2019, before the pandemic. In other industrial sectors, steelmaker Thyssenkrupp announced plans to cut production capacity by up to a quarter and reduce 40% of jobs. BASF intends to cut costs by €2 billion annually at its Ludwigshafen center, the world’s largest chemical plant.
The biggest challenge: Energy costs
A major challenge for German industry is energy costs, which are significantly higher than those of its competitors in the US and China.
Since the start of the war in Ukraine, Germany, formerly Gazprom’s largest European customer, has increasingly transitioned to more expensive energy sources.
While the country remains Europe’s largest gas consumer, industry, especially steel and chemicals, accounts for 60% of Germany’s total consumption.
According to the Federal Statistical Office, energy-intensive companies in Germany are now producing approximately 20% less than before the war.
Tens of thousands of workers in the chemical industry under threat
From BASF, the world’s largest manufacturer, to numerous small family-owned businesses, Germany’s extensive chemical industry is among the most severely impacted.
According to Destatis data, around 40% of employment and over half of the revenues in Germany’s chemical industry are dependent on so-called basic chemicals, most of which are derived from gas and crude oil.
Producers of these materials, used in plastics, fertilizers, and coatings, depend on affordable energy to maintain their slim profit margins in a highly competitive market.
Germany’s chemical and energy industry union IG BCE warned in January that over 200 plants had either reduced capacity or shut down, endangering 25,000 jobs.
The sector, which also provides supplies to other industries, has long served as an indicator of industrial demand.
Corporate stress level in Germany above the European average
Corporate distress in Germany remains elevated and is projected to rise over the next 12 months, as restructuring experts at the US law firm Weil, Gotshal & Manges told the FT.
The quarterly distress index, based on the financial health of approximately 3,750 listed European companies, estimates that in the most pessimistic scenario, Germany’s score could nearly double, reaching levels not seen since the peak of the pandemic.
The index employs 16 metrics to gauge corporate distress, including profitability, bankruptcy risk, and changes in valuation.
In contrast, according to the study, Britain, France, Spain, and Italy remain well below pandemic levels, even in the worst-case scenario.
Call for the next German government to ‘exit the crisis’
“Industry, property, and retail are the biggest drivers of distress in Europe, and Germany has two of them,” stated Andrew Wilkinson, partner and co-head of Weil’s restructuring practice in London.
Peter Leibinger, President of the Federation of German Industry, urged the next German government to prioritize strategies to steer the country out of the “deep economic crisis.”
“Order books are empty, machines are idle, and companies are looking abroad for investments. I don’t remember such a bad mood among industrial companies,” Leibinger said.