VW Plans to close German plants
However, a major economic reform on this level appears improbable due to strict limitations on government borrowing, known as the “debt brake,” which are embedded in Germany’s constitution.
A difficult three-party governing alliance has also hindered policy creation for months and caused the government to lack a clear direction for the country.
Brzeski of ING believes that although lower inflation may increase consumption in the coming year, the economy may not see significant improvement until 2026, when a new government is established after the general elections in September.
He stated that in his most likely scenario, the economy will continue to stagnate for another year.
Official data released on Wednesday showed that Germany narrowly avoided a recession in the third quarter, providing some respite for Europe’s
Germany’s Federal Statistical Office (Destatis) reported a 0.2% growth in GDP from July to September, fueled by higher government and household expenditures. This follows a 0.3% decline in the previous quarter. Destatis lowered the GDP numbers for the second quarter to -0.1%, down from the previous figure.
Germany’s economy experienced a contraction in the previous year, marking the first decline since the beginning of the Covid-19 outbreak. The future doesn’t look any better: The International Monetary Fund predicts no economic growth this year, making it the worst performance among major economies.
A significant decrease in Volkswagen’s profits further worsened the negative economic growth news. The challenges confronting the German economy are exemplified by the crisis occurring at the biggest manufacturer in the country, which may shut down domestic factories for the first time in its 87-year existence and reduce several thousand jobs.
Volkswagen reported on Wednesday that profit from operations decreased by 21% in the nine months leading up to the end of September compared to the previous year, reaching €12.9 billion ($14 billion), due to underperformance of its main brand and expenses related to restructuring. Car sales decreased by 4% mainly due to poor demand in China, where it is facing tough competition from local electric vehicle companies.
Antlitz continued, emphasizing that costs in the automaker’s German operations are still far from competitive, but assured that they have not lost the ability to manufacture excellent cars.
“He stated that the current situation is unsustainable.” Antlitz mentioned that the company will reconvene discussions with labor unions and employee representatives on Wednesday to talk about potential plant shutdowns in Germany.
Volkswagen stated in a subsequent announcement that a reduction of 10% in employee wages was necessary to ensure job preservation and secure the company’s long-term success. If an agreement is not reached, strikes could potentially occur starting on December 1 during the upcoming negotiations scheduled for November 21.
Volkswagen’s declining outlook suggests that the private sector in Germany is facing deteriorating conditions. A recent survey by S&P Global and Hamburg Commercial Bank revealed that this month saw the biggest decline in employment for manufacturing and services businesses in almost four and a half years.
Business and consumer confidence are currently lacking. Marcel Fratzcher, the president of the German Institute for Economic Research in Berlin, stated that the main concern right now is the significant pessimism in Germany.
This mental depression, this amazing pessimism could be the most powerful obstacle in the immediate future.
Germany
Volkswagen embodies the pessimism prevailing in Germany. The problems faced by the car manufacturer will have a widespread impact on the entire automotive sector, the largest in the country, making up 5% of GDP and providing jobs for nearly 800,000 people, with a significant portion working for Volkswagen in high-paying positions.
Volkswagen, along with Audi and Porsche, represents Germany’s manufacturing strength and successful exports that have made it one of the top global economies facing serious jeopardy.
A spokesperson for Germany’s auto association VDA stated that the crisis is not in the automotive industry, but in Germany as a business location, following an auto summit last month.
Germany, much like Volkswagen, deals with high labor costs, low productivity, and rivalry from China. It can no longer depend on high demand for its exports in the world’s second largest economy, as it now produces many goods locally that it used to import from Europe.
Carsten Brzeski, global head of macroeconomics at Dutch bank ING, stated that China has emerged as a competitor to Germany.
A study commissioned by the Federation of German Industries (BDI) found that 20% of Germany’s industrial output is in danger by 2030 due to high energy expenses and diminishing markets for German products.
The report, written jointly by the German Economic Institute (IW) and Boston Consulting Group, highlights that the country’s previous advantage in combustion technology is diminishing, while its export model is facing greater challenges from rising geopolitical tensions, global protectionism, and weaknesses in location.
It highlights Germany’s long-standing cost disadvantages, including high taxes, increased labor and energy costs, and acknowledges the challenge posed by an aging population to the country’s skilled workforce.
The research suggests that the German economy will require approximately €1.4 trillion ($1.5 trillion) in additional investments by 2030 for a significant transformation effort, the largest since the postwar era, including areas such as infrastructure, innovation, education, and green technologies.
Brighter fortunes
However, a major economic reform on this level appears improbable due to strict limitations on government borrowing, known as the “debt brake,” which are embedded in Germany’s constitution.
A difficult three-party governing alliance has also hindered policy creation for months and caused the government to lack a clear direction for the country.
Brzeski of ING believes that although lower inflation may increase consumption in the coming year, the economy may not see significant improvement until 2026, when a new government is established after the general elections in September.
He stated that in his most likely scenario, the economy will continue to stagnate for another year.
Leave a Reply