Structural change does not necessarily have to lead to de-industrialization

The much feared de-industrialization of Germany is not an inevitable fate. However, the necessary process of structural change in the German economy should be designed with an open mind and massive subsidies in favor of individual sectors of the economy should be dispensed with. This is the central finding of a lively discussion held by FERI experts together with their numerous guests from different parts of the economy at the 36th FERI Business Symposium. "The German economy must manage at least three transformation processes simultaneously: First, de-carbonization, which will lead to persistently high energy prices for the time being; second, de-globalization, which will limit the previous advantage of a high foreign trade orientation; and third, digitalization, which fundamentally calls previous business models into question," Axel Angermann, Chief Economist at FERI, elaborated. He added that Germany was significantly more affected here than other European countries because its previous business model had been determined by an above-average share of exports, above-average integration with China and above-average dependence on fossil fuels from Russia.

Automotive industry acutely endangered

The production of energy-intensive industries will continue to decline in the coming years, he said: for basic chemicals, FERI expects a cumulative decline of more than 20 percent by 2030, and for steel production and paper manufacturing by more than 10 percent. "However, this is by no means new, but the continuation of a structural change that has already been underway for years, and which has also occurred in the past in other sectors such as the clothing industry," Dagmar Kirsten, head of industry analysis, made clear. She added, however, that the development in the automotive industry as a result of electrification and fundamentally changed demands on its products should be viewed critically. The loss of market share in China, the most important market for German manufacturers, is particularly worrying in this context. Even an important sector such as mechanical engineering is increasingly being challenged by Chinese suppliers on its global sales markets. Shrinking sectors, however, were contrasted by areas with positive growth potential. These include the information and communications sector, which could grow four to five times as fast as the overall economy in the coming years. To make greater use of this potential, however, Germany generally needs a much more constructive attitude toward digitization, as well as consistent and rapid measures such as the comprehensive digitization of public administration. There is also a need for a fundamental data protection regulation and improved framework conditions for digital business models.

Subsidies not effective

Massive subsidies for "old" industries and established solutions to problems, on the other hand, are not the right way to accompany structural change, because this would conserve existing structures too much and the resources tied up there would also be lacking for innovative processes. Instead, the costs of decarbonization for companies should generally be limited. This could be done, for example, by decoupling the price of electricity from the price of gas. In principle, the framework conditions for the electricity market should be reorganized and the European integration of the electricity markets should be driven forward. In order to reduce existing dependencies on China, the conclusion and implementation of new trade agreements would be helpful. In addition to the reduction of excessive regulations and a fundamental acceleration of many processes, it is crucial to keep the development path open and not to artificially narrow it from the outset by committing to certain technologies. This is a task not only for politicians, but also for society as a whole.

In another presentation, Dr. Peter Buchholz, head of the German Raw Materials Agency, highlighted the aspect of the supply of raw materials to the German economy, pointing out existing price and supply risks and outlining possible alternative strategies.