“German manufacturing job losses deepen fears over industrial decline” -- Patricia Nilsson in Frankfurt, Patrick Mathurin in London and Laura Pitel in Berlin

“As German voters prepare to go to the polls on Sunday, data highlights the struggle of Europe’s biggest economy to cope with high energy costs, consumer malaise and fierce competition from China.”

Germany has lost almost a quarter of a million manufacturing jobs since the start of the Covid pandemic as companies and politicians sound the alarm that Europe’s industrial heartland is suffering an irreversible decline.

As German voters prepare to go to the polls on Sunday, data highlights the struggle of Europe’s biggest economy to cope with high energy costs, consumer malaise and fierce competition from China.

The trend has piled pressure on political parties to find remedies. Friedrich Merz, tipped to be next chancellor, warns that the country risks deindustrialisation with industrial groups “going abroad in droves; taking their money abroad”.

Once gone, these investments in domestic production were “not coming back”, the leader of the Christian Democratic Union (CDU) warned.

The loss of manufacturing jobs has been masked by a broader shift in employment trends. Overall the number of German jobs grew by 4.8 per cent between the start of 2020 and November last year, according to Bundesbank data — buoyed by growth in services industries such as real estate, healthcare, communications and public administration.

But among the hardest-hit industrial sectors, such as suppliers to the automotive industry, the loss has been palpable. According to the industry group VDA, some 11,000 jobs were lost last year alone among German car suppliers — one of the first sectors to announce job cuts as car production started to decline.

Gesamtmetall, a lobby group for employers in the metal and electrical industries, has warned of further cuts in jobs, forecasting that up to 300,000 more jobs will disappear from its members over the next five years — a near 7 per cent decline.

The contraction of Germany’s industry is evident in the fall of market value in the sector. Together, Dax constituents Volkswagen, Thyssenkrupp and BASF have lost €50bn, or 34 per cent, in market capitalisation over the past five years.

From 2010 to 2014, carmakers on the Dax index were more valuable on average than their peers in any other sector, but valuations have slipped as demand has started to falter.

VW’s deliveries to customers last year slumped by nearly a fifth compared with the pre-pandemic year of 2019. In other industrials, steelmaker Thyssenkrupp has announced plans to reduce its production capacity by up to a quarter and cut 40 per cent of jobs. BASF is looking to cut costs at its Ludwigshafen headquarters, the world’s largest chemical site, by €2bn a year.

One of the big issues German industry faces is significantly higher energy costs compared to competitors in the US and China.

Even before Russia’s full-scale invasion of Ukraine in early 2022, German businesses were complaining of high energy costs, with Vladimir Putin tightening gas flows already in 2021.

Since the invasion, Germany — then Gazprom’s biggest European customer — has scrambled for costly LNG. The country remains Europe’s largest gas consumer, with industry, primarily steel and chemicals, using 60 per cent of Germany’s total consumption.

Malte Küper, an expert on energy at the Cologne Institute for Economic Research, expects that German companies will still be paying more for both electricity and natural gas — as well as for hydrogen — in 2030.

“Energy costs are not the only reason for Germany’s low economic performance and the drop in production but it’s one of the main reasons,” he said. “If policymakers don’t act, Germany will remain stuck — making it hard to regain its attractiveness as a business location.”

Energy-intensive companies in Germany are now producing nearly 20 per cent less than before the war, according to the Federal Statistical Office. Germany’s sprawling chemical industry, from the world’s largest producer BASF to a myriad of small family-owned businesses, have been among the hardest hit.

According to Destatis data, roughly 40 per cent of jobs and more than half of revenues in Germany’s chemical industry are tied to so-called base chemicals, most of which are derived from gas and crude oil. Producers of the materials, used in plastics, fertilisers and coatings, rely on cheap energy to maintain narrow margins in a highly competitive market.

Germany’s chemical and energy industry union, IG BCE, warned in January that it was aware of more than 200 cases of plants either cutting capacity or shutting down, putting 25,000 jobs at risk. And the sector, which supplies other industries, has long been a bellwether for industrial demand.

Corporate distress in Germany remains elevated with levels expected to rise over the next 12 months, according to restructuring specialists at US law firm Weil, Gotshal & Manges.

Its quarterly distress index, based on the financial health of about 3,750 listed European companies, estimates that in the most pessimistic scenario Germany’s score could almost double to a level not seen since the height of the pandemic. The index uses 16 measures to gauge corporate distress, including profitability, risk of insolvency and change in valuation.

By contrast, the UK, France, Spain, and Italy would remain well below their pandemic levels even in the worst-case scenario, according to the research.

“Industrials, real estate and retail are the big drivers of distress in Europe, and Germany has two of these in scale”, said Andrew Wilkinson, partner and co-head of Weil’s London restructuring practice.

As the likely next leader of Europe’s largest economy, Merz has promised to rescue industry and the economy more broadly, by cutting taxes, reducing energy costs and slashing bureaucracy.

But to achieve a parliamentary majority, his CDU will have to form a coalition with at least one party, including either the Social Democrats or the Greens. That has left some industry leaders worrying that Merz will get bogged down in internal bickering of the kind that blighted Olaf Scholz’s three-way government.

Peter Leibinger, president of lobby group Federation of German Industries, called on the next German government to prioritise strategies to lift the country out of its “deep economic crisis”.

“Order books are empty, machines are idle, and companies are looking abroad to invest,” he warned. “I cannot remember such a bad mood among industrial companies.”