The German business location is currently in its “historically deepest crisis” since the founding of the Federal Republic and is in “free fall,” according to Peter Leibinger, president of the Federation of German Industries (BDI).
Leibinger issued his drastic prognosis as a new industrial report forecasts a decline in production for the fourth year in a row.
The BDI anticipates a “dramatic low point” for German industry at the end of 2025. Leibinger stated: “The business location is in its historically deepest crisis since the Federal Republic was founded, but the federal government is not reacting decisively enough.”
Leibinger’s warning comes at a time when there appears to be non-stop bad news for the German economy, fueling anger at the coalition government, especially against the Christian Democrats (CDU). The party is known for portraying itself as business friendly but is now failing to deliver on their promise of an economic turnaround. The failures have led to Chancellor Friedrich Merz experiencing rock bottom approval ratings, hovering at around 23 percent.
Structural decline
The BDI’s forecast expects production to fall by 2 percent this year, marking the fourth consecutive year of decline. Leibinger emphasized the severity of the situation, according to Spiegel. “This is not an economic downturn, but a structural decline.”
He warns that German industry is “continually losing substance.”
Several key sectors are struggling, in large part due to soaring energy costs and a difficult regulatory environment. However, other factors include falling demand from Asia, an aging workforce, and Germany’s high costs as a business location.
The chemical industry is in a difficult situation, with plant utilization recently at only 70 percent.
Mechanical engineering and the steel industry are also reported to be under pressure, with Remix News recently reporting how China is increasingly dominating this core industry. The automotive industry expects an increase in production and capacity utilization, but employment in the sector has come under pressure, which is a burden on the entire German economy.
In contrast, the construction industry appears to be stabilizing, although high costs for building remain a challenge.
Calls for an economic policy change
Leibinger stressed that the issues the country faces are fundamental to its economy.
“The problems of our location are existential for the German business model,” he said.
He urgently called for a shift in government policy:
“Germany now needs an economic policy change with clear priorities for competitiveness and growth,” he said.
Specifically, the BDI president demands that the federal government give priority to investments over consumer spending.
It should also use the government’s historic debt and spending package “transparently for additional investments.”
This recommendation comes amidst criticism that the government is shifting projects from the core budget to the special fund to free up money for financing controversial policies such as the expansion of mothers’ pensions.
He is also calling for a significant reduction in bureaucracy. While the federal government has taken initial steps, companies require far-reaching relief “that they really feel in everyday life.”
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