Following the news that VW, Europe’s largest carmaker, may close two factories, experts are warning that the reduction in production is not limited to the car industry. The German Institute for Economic Research (DIW) says that companies must evolve.
While the European Union automotive companies (EU) are fighting against the gradual abandonment of combustion engines and the transition to electric vehicles before 2035, experts predict that in the next two years they could thousands of jobs will be cut in different sectors.
DIW President Marcel Fratzscher says the German economy is depends on exports and industryand that, in the face of the energy transition, “companies have missed the transformation train.” Many, like Volkswagen, “have been left behind.”
“It’s not just the car sector, it’s the machinery sector, the pharmaceutical sector, the chemical sector, it’s a problem that many people have,” he told Euronews.
The world’s largest chemical producer, which is based in Germany, BASF, also is considering moving part of its staff to Asia and laying off workers in Germany, amid skyrocketing energy prices due to the large-scale invasion of Ukraine and burdensome bureaucracy in Germany.
Has Germany lost its competitiveness?
Asia is in an upward economic spiral that is having a global impact. “German companies are They have already relocated a lot of production to China, to India, to other places, and this will continue,” Fratzscher said.
With China beginning to reduce competition and subsidize its own companies, “German companies are finding it harder to compete”especially with the high energy and labour costs in Europe.
What lies ahead for the German economy?
DIW said he sees a “German economy stagnates this yearand a gradual recovery in the coming years.” The German economy contracted again in the second quarter of 2024 and is technically in recession, with industrial production continuing to fall.
The automotive industry has been particularly affected by the Low demand for electric vehiclesdue to the slow pace of infrastructure investments.
However, Fratzscher is optimistic and believes that large German companies “have always been very innovative”, after reinvent yourself several times“They need to readjust, they need to reform. And that is the case with Volkswagen and many German companies,” he added.
Can the German Government help?
Fratzscher said that does not believe that the Government should interfere to retain workers. “Transformation means change. Change often means consolidation. Companies need to downsize in order to invest and develop new technologies“, he said.
Fratzscher also pointed out that the fact that the Government is trying to maintain the old structures in large companies not limited to Germanybut it is a European phenomenon.
“Often the old parts, redundant parts of an economy need to go so that new parts can happen and reappear or develop,” he added, suggesting that these crises They have no short-term solutions.
“It will require some resilience and continued investment over the next five years and then hopefully over that period, The German economy will manage the transition“.
Since the German economy It depends heavily on the automotive industrythese mass layoffs could lead to increased disillusionment among the German population and play into the hands of the far right. This could have a major impact on next year’s federal elections.
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