German Deindustrialization Is Still Looming
Germany’s economic model, which relied on cheap Russian gas imports and high-quality industrial exports, has collapsed in the wake of the war in Ukraine and the rise of China. While Germany avoided the recession that many had predicted this winter, restoring long-term competitiveness will be a far bigger challenge.
MUNICH – A few months ago, Germany was bracing for a harsh winter. After Russia cut off Europe’s natural-gas supply and prices more than doubled, German officials warned of power outages and rolling blackouts. Some cities reportedly planned to convert sports facilities into “warming halls” for the poor and the elderly, and the media speculated about energy rationing. But those predictions did not materialize. In the face of a historic challenge, Germany proved to be more resilient than many had believed.
Yet Germany is still panicking. Instead of fretting about gas heaters, however, Germans are now haunted by the specter of deindustrialization. Not a single day goes by without some media outlet or research institute predicting that factory closures and the rise of China will lead to the country’s downfall. The state-owned bank Kreditanstalt für Wiederaufbau recently warned that Germany faces “an era of declining prosperity.” And Yasmin Fahimi, the head of the German Trade Union Confederation (DGB), warned that the energy crisis would lead to deindustrialization and massive layoffs.
Meanwhile, the Center for European Economic Research (ZEW) in Mannheim called Germany the “big loser” of today’s global economy, placing it 18th out of 21 industrial countries in its competitiveness ranking. Other experts have warned that rising energy costs will force manufacturers to move their operations to Eastern Europe and the United States in response to US protectionism.