Germany's industrial decline deepens, political tensions rise

Analysing quarterly data, a noticeable downward trend can be observed. In the period from July to September 2024, production was 1.9 percent lower than in the previous three months. This is a significant worsening of the economic situation, especially considering that in August 2024, there was a 2.6 percent increase compared to July.

The situation was particularly concerning in the automotive sector. In this sector, production fell by a substantial 7.8 per cent month-over-month, which is a drastic change from the 15.4 per cent increase recorded in August. Significant fluctuations in this industry had a major impact on the overall results of the German industry.

Negative trends affected most branches of the German industry. Production in the chemical industry decreased by 4.3 per cent, further deepening the overall decline. The only bright spot was the machinery construction sector, which recorded a 1.7 per cent increase.

In the entire industrial sector, excluding energy and construction, the production decline was 2.7 per cent. This particularly affected the production of investment goods, which decreased by 4 per cent. Production of intermediate goods fell by 1.6 per cent, and consumer goods by 1.4 per cent.

The energy sector also recorded a decline - energy production decreased by 2.1 per cent compared to August. A similar trend was observed in construction, where production fell by 1.4 per cent.

In sectors with high energy consumption, the production decline was particularly severe, reaching 3.3 per cent compared to August 2024. This situation was largely due to a drop in production in the chemical industry.

Historical data show that in September 2024, production in energy-intensive sectors was 2 per cent lower than in the same period of the previous year. It's worth noting that these sectors, which account for 17 per cent of industrial gross value added, are responsible for 77 per cent of total energy consumption in the German industry. In 2021, nearly one million people worked in almost 7,000 industrial plants in these sectors.

The German economy is currently experiencing an unprecedented crisis that affects three key sectors: automotive, chemical, and machinery. The decline in industrial production and foreign investment indicates a structural problem, largely due to high energy costs and intense competition, mainly from China. These factors are leading to the massive withdrawal of foreign capital from the German market, further worsening economic growth prospects.

The consequences of this crisis will be felt not only in Germany. Poland, a key partner of the German economy, will face challenges related to the loss of benefits stemming from integration within the supply chain. The slowdown in growth dynamics in the German industrial sector will require Polish enterprises to adapt to new business models and seek alternative markets. In the face of low activity in the building and industrial sectors of the European Union, this task will become even more challenging.

The current situation in the German government is dominated by internal tensions and differences between the SPD, the Greens, and the FDP. The conflict regarding next year's budget, strengthened by the leak of a draft with finance ministry proposals, has already disrupted the delicate balance between the coalition partners. The FDP's proposals regarding tax cuts and changes in climate policy faced strong opposition from the SPD and the Greens.

Possible solutions to the situation include either continuing cooperation after reaching an agreement or potentially dissolving the coalition, which may lead to early elections or the formation of a minority government.