Inflation is crushing savings, energy prices are sky-high, and late summer will soon be over: The Federal Republic is intensively discussing how endangered the location is. Some fear deindustrialization. The Bundesbank has now simply asked industrial companies directly what their situation is like. The result: comprehensive de-industrialization is therefore not in sight. On the contrary, companies know how to adapt to increased energy costs.
Around 540 industrial companies answered questions from the Bundesbank from January to March 2023. The central bank’s economists wanted to know how companies are reacting to the fact that energy has become more expensive. According to their own statements, the companies are primarily focusing on using energy better. German industry is investing on a large scale in energy efficiency and is relying broadly on renewable energies. Additionally, not surprisingly, many manufacturers have increased prices.
According to the survey, German industry is already at risk of a bit of emigration. Weighted by sales, around an eighth of the industry sees itself under so much pressure that production is being relocated abroad. The Bundesbank finds this “rather rare,” she writes in their new monthly report. It’s more about larger companies. But overall, the risk of production being relocated due to increased energy prices has been “limited so far,” write the central bank’s economists. According to the survey, this also applies to energy-intensive companies.
The Bundesbank survey cannot say anything about whether only small parts or large areas are affected by a relocation; that was not part of the questions. The only thing that was counted was whether a company said it had already taken this step since 2022 or planned it for the near future. Around an eighth of industry is also affected by shrinkage: companies say they are producing less. Here, too, it is unclear whether only a few products were canceled or entire factories were shut down.
The energy price shock is causing German industry to shrink somewhat – but the Bundesbank isn’t worried about that. She points out that in rich countries the share of industry in economic output is generally falling. If this structural change continues, it does not have to be damaging to the German economy, the economists write. This development is “not worrying, especially if it occurs gradually.”
Not everyone shares these assessments. Many entrepreneurs are proud that industry in Germany is economically more important than in comparable countries. It is argued that exports in particular keep Germany competitive. The Bundesbank does not believe this statement is supported by economic data. Over the past three decades, Germany has not become systemically more or less productive than countries with less industry.
But one thing is clear, despite all the adjustments made by companies: the increased energy prices are costing Germany growth.