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The outlook for Germany’s industrial sector in 2024 remains bleak, with the German business association BDI predicting a 3% decline in production. This marks the third consecutive year of contraction for the country’s industrial output. According to BDI Managing Director Tanya Gönner, a recovery in the industrial sector is unlikely next year, as key industries continue to face significant challenges.
Sector-Specific Challenges
Germany's leading industrial sectors are experiencing notable declines, contributing heavily to the overall downward trend. In September 2024, the automotive industry reported a 6.9% year-on-year decrease in production. Similarly, mechanical engineering and electrical engineering sectors suffered sharper declines of 8.5% and 10.7% year-on-year, respectively. These figures highlight the persistent struggles faced by industries that have traditionally formed the backbone of Germany’s economy.
The industrial recession is not confined to Germany alone. The broader European Union is also grappling with similar issues, with both Germany and the EU becoming less attractive for industrial investment. The combination of high production costs, energy prices, and economic uncertainty has made these regions less competitive on the global stage.
Exports and Trade Outlook
The BDI anticipates a 0.5% year-on-year decline in German exports in 2024, in stark contrast to the projected 2% growth in global merchandise trade. This underscores the diminishing competitiveness of German goods in international markets. The situation is unlikely to improve in 2025, as export expectations within the country’s industrial sector continue to deteriorate. Weak export performance is compounded by equally sluggish import activity, further underscoring the challenges facing Germany’s trade-dependent economy.
Economic Growth Forecast Adjustments
Germany’s economic struggles have also been reflected in downward revisions to growth forecasts. The International Monetary Fund (IMF), in its October 2024 report, reduced its GDP growth forecast for Germany in 2025 to 0.8%, down from an earlier estimate of 1.3%. Similarly, German economists have revised their projections to just 0.5%, a significant reduction from the previous forecast of 1.1%. These adjustments reflect the mounting challenges for Germany’s economy, including ongoing industrial declines and subdued global trade prospects.
Steel Market Implications
The deteriorating economic outlook for Germany has had ripple effects on the expectations of steel market participants. Steel demand in Germany is closely tied to industrial production, particularly in sectors like automotive and machinery manufacturing. With these industries struggling, the steel market faces diminished prospects for growth. High energy costs and weak export demand further exacerbate the challenges for Germany’s steelmakers, adding to the industry’s woes.
Potential for Improvement
While the near-term outlook remains grim, there are potential factors that could lead to positive developments in Germany’s economy. The interest rate cuts initiated in June 2024 are expected to have a stabilizing effect, though their impact may take time to materialize. Additionally, the resolution of Germany’s ongoing political crisis, anticipated by spring 2025, could restore investor confidence and provide a boost to economic activity.
However, there are also risks that could derail any potential recovery. One key concern is the possibility of higher import duties on German goods entering the United States. Such a development could further weaken Germany’s export competitiveness, adding another layer of difficulty to an already challenging trade environment.
Conclusion
Germany’s industrial sector faces a challenging road ahead, with a predicted 3% decline in production for 2024 marking the continuation of a downward trend. Key industries such as automotive, mechanical engineering, and electrical engineering are under significant pressure, while exports and imports remain weak. The broader European Union is also experiencing similar industrial slowdowns, diminishing the region’s attractiveness for investment.
While measures such as interest rate cuts and the resolution of political uncertainties may offer some relief in the medium term, risks such as potential U.S. import duties continue to cloud the outlook. For Germany to regain its economic footing, addressing the structural challenges in its industrial base and improving global competitiveness will be crucial.
