Germany's Economic Woes Loom Large Ahead of Election
Pessimistic outlook from German industries on job prospects by 2025
Germany's economic engine could be sputtering as we approach an early general election, with job losses in crucial sectors poised to be a hot-button issue.
The IW Institute, serving as a economic crystal ball, predicts that the number of employers anticipating a dip in employment levels in 2025 has climbed to a staggering 25. This count hails from a survey conducted late last year, surpassing the 23 projected for 2024 and the 16 foreseen for 2023.
Hard-hit sectors such as chemicals, automobiles, machine production, construction, and metalworking are among those expressing concerns over employment numbers. Conversely, sectors like pharmaceuticals, aerospace, energy, and recycling anticipate growth.
Behind the scenes, many industries grapple with escalating costs for energy, materials, and labor, as well as the complex German bureaucracy. Car manufacturers have already announced cost-cutting strategies in recent months. Steelmaker Georgsmarienhuette, struggling to stay afloat, has opted to decrease employees' hours, though redundancies remain a possibility.
In prior years, businesses often held onto staff during anticipated production drops due to a labor shortage. However, IW's studies suggest this "retention effect" has weakened significantly in 2024.
The federations questioned by IW express deep concern about the current economic outlook, rate it worse than a year ago, and believe it's a far cry from the rosy picture presented before. Germany's central bank forecasts a miniscule 0.2% GDP growth in 2025, following a slight contraction in 2024.
Background Factors
A myriad of factors play a role in the anticipated employment decline in Germany's key sectors. These factors include:
- Structural economic problems: The German economy is grappling with underlying issues that affect employment, such as shifts in industrial production and changes in global trade policies, particularly those affecting key partners like the US.
- Trade policy uncertainty: The US trade policy, which includes tariffs, places pressure on German exports and production, potentially leading to reduced labor demand in export-oriented sectors.
- Sectoral shifts and technological change: The evolving tech industry contrasts starkly with traditional manufacturing and certain industrial sectors, which may experience employment contractions as processes become more efficient or production is outsourced.
- Economic growth constraints: Despite some recovery and modest growth projections, the sluggish pace does not support strong employment growth, and in some sectors, this translates into job losses or stagnation.
- Labor market dynamics: The German labor market challenges include matching skills to new job requirements, dilemmas reflected in the employment contraction in sectors not adapting to new economic demands.
In face of Germany's approaching general election, the finance sector might experience turbulence due to projected employment declines in key industries like chemicals, automobiles, machine production, construction, and metalworking. Meanwhile, sectors such as pharmaceuticals, aerospace, energy, and recycling anticipate growth, potentially impacting Germany's overall financial health.
