German industrial decline intensifies amid political tensions

Analyzing quarterly data reveals a noticeable downward trend. From July to September 2024, production was 1.9 percent lower than in the previous three months. This marks 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 percent month over month, a drastic change from the 15.4 percent 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 percent, further deepening the overall decline. The only bright spot was the machinery construction sector, which recorded a 1.7 percent increase.

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

The energy sector also recorded a decline, with energy production decreasing by 2.1 percent compared to August. A similar trend was observed in construction, where production fell 1.4 percent.

The production decline was particularly severe in sectors with high energy consumption, reaching 3.3 percent 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 percent lower than in the same period of the previous year. These sectors, which account for 17 percent of industrial gross value added, are responsible for 77 percent 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 experiencing an unprecedented crisis affecting 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 lead to a 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 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.

Internal tensions and differences between the SPD, the Greens, and the FDP dominate the current situation in the German government. 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 continuing cooperation after reaching an agreement or potentially dissolving the coalition, which may lead to early elections or forming a minority government.