Following the news that VW, Europe’s largest car manufacturer, could close two factories, experts warn that the reduction in production is not limited to the car industry. The German Institute for Economic Research (DIW) states that companies must evolve.
While the automotive companies in the European Union (EU) fight against the progressive abandonment of combustion engines and the transition to electric vehicles before 2035, experts predict that in the next two years they could thousands of jobs to be cut in different sectors.
The president of the DIW, Marcel Fratzscher, affirms that the German economy depends on exports and industryand that, in the face of the energy transition, “companies have missed the train of transformation.” Many, like Volkswagen, “have been left behind.”
“It’s not just the automobile sector, it’s machinery, pharmaceuticals, chemicals, it’s a problem that many have,” he told ‘Euronews‘.
The world’s largest chemical producer, which is based in Germany, BASF, also is studying moving part of its staff to Asia and lay off workers in Germany, amid exploding energy prices due to the large-scale invasion of Ukraine and burdensome bureaucracy in Germany.
Has Germany lost its competitiveness?
Asia is in an upward economic spiral that is having a global impact. “German companies They have already relocated a lot of production a Chinato India, to other places, and this will continue,” Fratzscher said.
With China starting to reduce competition and subsidizing its own companies, “German companies find it more difficult to compete”especially with the high energy and labor costs in Europe.
What awaits the German economy?
DIW said he sees a “stagnation of the German economy this yearand a gradual recovery in the coming years.” The German economy contracted again in the second quarter of 2024 and is technically in recessionwith industrial production that continues to fall.
The automobile industry has been especially affected by the low demand for electric vehiclesdue to the slowness of investments in infrastructure.
However, Fratzscher declares himself optimistic and believes that large German companies “have always been very innovative”, after reinvent yourself several times. “They need to readjust, they need to reform. And that is the case with Volkswagen and many German companies,” he added.
Can the German Government help?
Fratzscher said that He does not believe that the Government should interfere to retain workers. “Transformation means change. Change often means consolidation. Companies need to downsize in order to invest and develop new technologies“he stated.
Fratzscher also pointed out that the fact that the Government tries to maintain the old structures in large companies not limited to Germanybut it is a European phenomenon.
“Often the old parts, redundant parts of an economy need to go so that new parts can happen and reappear or develop,” he added, suggesting that these crises They have no short-term solutions..
“It will take some resilience and continued investment over the next five years and then, hopefully, over that period, the German economy will manage the transition“.
Since the German economy largely depends on the automotive industrythese massive layoffs may cause increased disillusionment among the German population and play into the hands of the extreme right. This could have a big impact on next year’s federal election.
