German Industry Dramatically Losing Ground

The latest surveys by the ifo Institute from July paint a bleak picture: a quarter of all German industrial companies see themselves as less competitive in international comparison, especially compared to countries outside the EU. This disturbingly high value has remained unchanged since the last survey in April. It is a clear sign that the situation has not improved but has solidified.

But not only globally, the German industry also feels the headwind within Europe. Although the proportion of companies reporting a decline in their competitiveness compared to other EU member states slightly decreased from 13.4 to 12.0 percent, the mood remains tense. The competitive pressure is omnipresent and challenges companies to take drastic measures.

Energy Prices, Bureaucracy, Investment Backlog: The Structural Brakes

Klaus Wohlrabe, the experienced head of the ifo surveys, clearly identifies the core problems: "The German industry struggles with structural disadvantages – such as energy prices, regulation, and investment conditions." These factors act like an invisible anchor that holds back German companies in the global race and disadvantages them compared to other economic locations.

High energy costs significantly burden the production of energy-intensive sectors, while excessive bureaucracy and unattractive investment conditions hinder innovation and expansion. Many companies are increasingly losing ground in the global comparison, which endangers Germany's economic strength in the long term.

Sectors in Focus: Mechanical Engineering Under Massive Pressure, Automotive with a Glimmer of Hope?

The survey shows differentiated developments in the individual industrial sectors. Mechanical engineering, a traditional German showcase industry, suffers the most. Here, the proportion of companies with declining competitiveness rose from 22.2 to an alarming 31.9 percent – the highest value ever recorded. The alarm bells are ringing because mechanical engineering is an indicator for the breadth of the industry. The electrical industry also feels increased competitive pressure, indicating the need for rapid adjustments.

Only the automotive industry reported a slight relaxation: the proportion of pessimistic companies halved from 33.0 to 16.1 percent. This could indicate short-term adjustments or a recovery from previous setbacks, but it is no guarantee of a permanent trend reversal.

US Tariffs and the Uncertain Future

The challenges do not end at the European borders. The German economy is also facing a difficult second half of the year due to ongoing and potentially intensified US tariffs. Klaus Wohlrabe emphasizes the significant burden: "German companies have to live with a structural surcharge of 15 percent compared to competitors in the USA following the preliminary agreement in the tariff dispute."

Whether this massive disadvantage can be compensated by new trade relationships, further market diversification, or internal efficiency improvements remains the big open question. The sword of Damocles of tariffs continues to hang over the German industry, demanding urgent decisive and strategic responses from politics and companies. The ability to adapt in a rapidly changing global environment will determine the fate of the German industry.

What is the ifo Institute?

The ifo Institute for Economic Research is one of the largest economic research institutes in Germany, based in Munich. It is known for its monthly surveys, such as the ifo Business Climate Index, which provide important early indicators for the German economy.

Why are high energy prices a disadvantage for the German industry?

Energy-intensive industries in Germany are heavily reliant on affordable energy. Rising energy prices significantly increase their production costs, making their products more expensive and less competitive internationally.

How do US tariffs affect the German economy?

US tariffs increase the costs of German products in the American market. This makes German exports more expensive and less attractive to US customers, which can lead to reduced sales and profits for German companies and result in job losses.

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