Eve here. Certainly, this post is intended to be read by academic economists, but when it comes to the harsh conditions of German manufacturing, it is understated enough to have the quality of “war situations are not necessary for the benefits of Japan.” The German manufacturing operations department merely as “recent weakness” by the fact that many of the severity of the damage has a “bleed” quality. This article has been properly translated into ongoing effects and meanings of factors such as the Chinese recession, such as the impact of higher energy prices and the apologies of the automotive industry. Closures of factories, or even excessively long closures of production lines, can lead to lasting and potentially irreversible damage. Skilled workers and managers move to roles that do not require the expertise they have accumulated in the factory. This is how the recession slowly transforms into post-industrialization.
By Marco Fracadro, Italian Bank of Economists. Originally published on Voxeu
The German manufacturing sector has been struggling since 2021 due to rising energy costs, weak global demand and a decline in the automotive industry. This column explains how energy-intensive industries, trade fragmentation, and competitive gas consumption hit Germany harder than other euro-regional economies, and the impact of German industry has had a major impact on neighboring countries. indicates. High energy prices and restricting demand will continue to support the challenges of the German manufacturing sector and its European partners.
The energy price outbreak, which began at the end of 2021, had a serious impact on the manufacturing sector in the Euro area. This is a production that fell below pre-pandomic levels in the second half of 2024 (Figure 1). German industry was strongly influenced (Bachmann et al. 2022), and experienced even more sudden contributions, reducing its output by about 10 percentage points. The weakness of the German industrial sector is the reason for concern in the WHOE Euro region. Given the close integration of manufacturing activities across the eurozone economy (Amador et al. 2015), development of German industry could create important externalities.
Figure 1 Manufacturing production index (2019q4 = 100)
Source: EuroStat and author calculations.
Note: All data is seasonally adjusted and adjusted to the moving average for the third period. Last observation: November 2024.
A new paper (Flaccadoro 2024) highlighted three main factors that have contributed to the weekly performance of Germany’s relatives over the past few years, and analyzed the ripple effects on other euro-regional economies.
Energy crisis
First, the increase in energy costs in Europe had a greater impact on German manufacturers than in other euro countries. Energy-intensive industries showcase relative high natural gas content in two accounts for similar shares of manufacturing across the Germany and the Euro area. Similarly, when we saw non-internal heavy energy users over the past few years, there was no significant difference in gas prices between the Germany and the Euro region. Therefore, in Germany’s gas-intensive industry, it becomes more sensitive to disrupting production in other euro countries, particularly the chemical sector. In fact, the German chemical sector relies more on natural gas as an interim input than other euro regions countries. Due to the significant links between the chemical industry and other sectors, its weakness has passed through other energy-intensive industries, causing a further decline in production within Germany’s energy.
Figure 2 Energy Integration Sector Production (2019q4 = 100)
Source: EuroStat and author calculations.
Note: Industrial production indexes related to energy intervention industries are calculated using the following sectors (born in two digit categories). C17, paper and paper products manufacturing. C20, manufacturing of chemical and chemical products. C23, manufacturing of other non-metallic mineral products. C24, manufacturing basic metals. All data is seasonally adjusted and adjusted to the moving average for the third period. Last observation: November 2024.
Weak demand conditions
Second, due to the openness of Germany’s trade, the global demand for goods, increased trade fragmentation, and slower competition with Chinese producers has been slowed down compared to other major Euro AEA manufacturers. has also influenced German manufacturing companies. In fact, in 2023, goods exports were added to 34% of Germany’s GDP, 27% in Italy, and 23% in France. Furthermore, German goods exports were more leaning towards China (6.1% of total goods exports compared to 4.2% in France and 3.1% in Italy). 3And also a measure of price competitiveness calculated by the Bank of Italy’s wage dynamics. This dynamic contrasted with the significant competitive improvements achieved by German companies in the early 2000s following the reforms in the Herts labor market (Fadinger et al. 2023).
Consistently, German exports of goods lost momentum. After rising during the afterman of the pandemic crisis, the number of months of summer 2024 fell below pre-pandemic values (Figure 3). In contrast, Euro area exports rose by about 5% above these pre-crisis levels in the same anomaly.
Figure 3 Export of products (2019q4 = 100)
Source: EuroStat, and author calculations.
Note: Chain link value. Last observation: 2024Q3.
The decline in the automotive industry
The third factor is the recession in the automotive industry, with its weight being twice as much a reinvention as the entire Euro area. The sector is affected by low demand and increased competition with Chinese automakers. Therefore, quantitative demand side indicators for the automobile sector are hidden along with domestic demand for automobiles, as shown by the downward trend of automobile registration across the Euro area (Figure 4). Al-Haschimi et al. (2024) shows that between 2019 and 2023, the euro area automotive industry faces a disadvantageous development in relative producer prices and a reduction in market share for Chinese manufacturers. . 4In particular, China is fierce competition for European automakers, as low-cost electric vehicles (EVs) are exported to Europe in large quantities. Given that the EU is the most important market for German EV exports (85% of exports, almost $20 billion), China is a key source of competition for German automakers.
Figure 4 Car registration (2019q4 = 100)
Source: EuroStat and the author details.
Note: All data is seasonally adjusted and adjusted to the moving average for the third period. Last observation: December 2024.
Finally, recent developments in regulatory frameworks have caused further uncertainty for car producers, both in Germany and the EU. First, the obligation to import electric vehicles from China, compiled by the European Commission in October 2024, could likely induce subresalization and attenuate European car exports. Second, the potential reopening of the 2035 zero problem target, adopted by the European Commission within the scope of the contract with “55” in March 2023, could potentially postpone spending to EU households. there is.
Spillover analysis
Currently, we present the results of a spillover analysis that allows us to quantify the interdependence of manufacturing activities across the major euro economy. In particular, we follow the approach of Diebold and Yilmaz (2009) to measure ripple effects via dispersion decomposition related to vector self-tax evasion (VAR) models. According to this approach, the country-to-country ripple effect is estimated as the percentage of predicted error variance decomposition at the horizon over six months in Country J due to the impact generated in Country I. Our baseline estimates focus on Pann’s week from December to December 2019, with repeated results due to the global financial crisis and pandemic-related disadvantages on economic activity, and nine economies production index of Germany, France, France, France, France, Spain, Netherlands, Belgium, Austria, Finland, Portugal). Our findings are robust in extending the analysis period until July 2024 or January 2000 to manage industrial development in the US and China. The drain from German industry to the manufacturing sector of other euro regional economies is large. In fact, shocks that occurred in the German industrial sector account for almost 31% of the predicted fluctuations in Italian manufacturing activities after six months. Meanwhile, the shock born in the Italian manufacturing sector explains about 11% of the fluctuations in German industrial activity. The impact of spillover from Germany is also quite significant for France and Spain. Meanwhile, innovations derived from these two countries determine weaker turbulence in the German manufacturing sector.
I’m looking ahead
The above challenges are unlikely to dissipate immediately. First, EU gas prices are set to exceed pre-anergy crisis levels over the next few years. Second, demand outlook remains restrained, and geopolitical factors eliciting downward risks for economic activity. Third, demand is particularly weak for companies in the automotive sector, so competition with Chinese manufacturing is set to be integrated over the next few years, particularly in the green energy technology segment.
Author’s Note: The opinions expressed in this column are those of the author and do not reflect the views of the Bank of Italy in nudal.
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