Photo by Sean Gallup/Getty Images

Are the Germans doing it better?

Putting the UK’s economic performance in perspective

Artillery Row

Bad news about the British economy is flooding the media. Whether it is coverage of the UK budget, or the latest IMF forecasts, or rising mortgage rates, everywhere there is doom and gloom — even if the article contents are often far less negative than the headlines suggest. 

I was recently sent an article in the Times reporting on the British Chambers of Commerce latest survey of small and medium sized businesses which reported a “collapse” in export growth with only 22 per cent of companies reporting export growth compared to 35 per cent previously (50 per cent reporting no change and 28 per cent reporting falling orders). My correspondent asked me the question, “is this how you deliver growth?”

Clearly any drop is unwelcome, but the article prompted me to ask the question curiously lacking in much coverage: how does this compare to what is happening across the world? 

Let’s take a look at EU powerhouse Germany.

In a survey by Germany’s BDI industry association of 593 companies, which took place from mid-August to early September, more than a third said their very existence was under threat due to rising prices, up from 23 per cent in February. Some 58 per cent of firms saw skyrocketing costs as an existential challenge and almost 25 per cent were considering, or in the process of, relocating part of their business

Germany is on the verge of total de-industrialisation

Fully 10 per cent of German medium-sized companies report that they see themselves on the verge of financial collapse with German industry now paying wholesale gas prices for 2023 that are eight times higher than in the USA.

This survey is not an outlier. The Federal Association of Small and Medium-Sized Businesses (BVMW) noted that almost three quarters of the companies they surveyed reported suffering from current energy prices. 42 per cent of their members said the explosion in energy prices was endangering the very existence of their companies.

Meanwhile the ruling Social Democrat party is reported to be so concerned that rising energy costs could spur a wave of bankruptcies, particularly among small and medium-sized firms, that it wants a temporary suspension of insolvency requirements.

Business Leaders magazine has begun producing a list of German companies who have declared bankruptcy, cut employment, closed/moved production, slashed investment, etc. The list grows longer almost daily as more and more German business leaders declare that Germany is on the verge of total de-industrialisation.

In energy intensive “metal bashing” industries, the news is dire. ArcelorMittal — the second largest steel producer in the world — is significantly reducing steel production in Germany including partially ceasing operations at several German locations. From the end of September, the company will shut down one of the two blast furnaces at the Bremen flat steel site until further notice. 

The boss of the steel refiner Waelzholz (which employs 1,500 people), Hans-Toni Junius says that strict German climate laws are forcing his company to relocate even more production to Poland or China. If things do not change, he warns, Germany is threatened with complete de-industrialisation.

According to Karl-Ulrich Köhler, the CEO of Stahl-Holding Saar, the future of the steel industry in Germany is in serious jeopardy. “The question of location will arise in the coming years … These systems will not necessarily be in Germany”.

Aluminium producer Trimet, which employs 2,400 people, has already severely curtailed production due to high electricity prices. Boss Philipp Schlueter states that the effective standstill will turn into permanent cuts if things do not change quickly. The President of the Association of the Aluminium Industry, Hinrich Mählmann, sees no way for his company the Otto Fuchs Group to save gas without cutting production. 

The Aluminium Germany association concurs, pointing out that nine out of ten aluminium smelters in Germany cannot switch to any alternative energy source other than gas, and that reducing gas supply by just 30 per cent would bring aluminium production in Germany to a standstill in over half of companies.

Nickel and Zinc production is also affected. The Zur Trafigura Group, for example, has put the Budel zinc smelter — one of the largest in Europe — into a state of maintenance and repair “until further notice”. ROT Rickert Surface Technology has shut down its nickel plant with company owner Sönke Rickert telling Norddeutscher Rundfunk (NDR): “I can’t tell customers that what used to cost 50 euros now costs 200 euros.”

Other energy intensive industries are also in significant trouble. Glass manufacturer Duralex is to shut down its melting furnaces for four months from November, due to the “exploding energy prices”. Cristal d’Arques (c.1,500 employees) has also reduced production and ordered a three-day week. The company explains that it can no longer pay the gas costs, which have risen from 18 million euros to over 260 million euros. Continued production in Europe is simply unprofitable. Dachziegelwerke Nelskamp GmbH (turnover c.140m euros) has temporarily stopped the energy-intensive production of clay roof tiles on 1 September 2022, affecting half of its 600 employees. 

It is not just traditional industries —  even food production is at risk

It is not just the metal bashing and energy intensive industries that are struggling. Higher energy prices and raw material costs are sending a wave of distress throughout the supply chain. In the systemically important automotive industry, for instance, we are beginning to see significant problems. Automotive supplier Dr Schneider — with a turnover of 451 million euros in 2021 — has filed for insolvency. The company employed a total of 4,000 people. Fellow automotive supplier Vitesco Technologies Group AG is to cut 810 of 1,160 jobs at its Nuremberg production site by 2026. The company reported sales of 7.8 billion euros in 2019. Kostal Automobil Elektrik GmbH & Co. KG will close three production sites in the Märkisches Kreis in Germany, costing hundreds of jobs. The company, which employs c.18,000 people at 46 locations in 20 countries, says this is the only way to ensure its continued existence.

Metal finishing/stamping specialist DMV Deutsche Metallveredelung GmbH has declared insolvency. Almost 100 employees will lose their jobs. Meanwhile springs and stamping behemoth Baumann Federn AG (1,500 employees worldwide) is reported to be “intensively examining relocating production to the USA or Asia”.

It is not just “traditional” industries who are looking to relocate. Hellma Materials GmbH, the world market leader in semiconductors, has shifted all future investments from Jena in eastern Germany to Sweden, stating, “In our view, one of the biggest problems in German energy policy is that the energy price components are unpredictable.” Siltronic AG, the semiconductor supplier, is relocating to Asia. Siltronic boss Christoph von Plotho in an interview with the Handelsblatt said: “High electricity price makes the location (Germany) unattractive.” This company reported sales of 1.4 billion euros in 2021.

Even food production is at risk. One of the largest nitrogen fertiliser manufacturers in the world, Yara International (17,000 employees), has announced it plans to shut down around 40 per cent of Europe’s total ammonia production capacity — because “skyrocketing gas prices make profitable production impossible”. SKW nitrogen works Piesteritz GmbH, the largest Central European fertiliser manufacturer, has put production in Germany at a complete standstill until further notice. The company employs about 860 people and reports sales of around 504 million euros.

I could go on, but by now I am sure it is clear that something very serious and significant is happening to the German economy. Talk of de-industrialisation is not mere hyperbole but a real possibility unless energy prices are not just temporarily but permanently lowered. Rather puts the news of the drop in the number of UK SMEs reporting export growth from 35 per cent to 22 per cent into perspective doesn’t it?

Whatever issues the UK economy is having pale into insignificance compared to the economic turmoil the EU’s economic powerhouse is currently experiencing. That doesn’t mean the UK should gloat. A de-industrialised Germany is a de-industrialised Europe, and the UK economy will only be hurt if the German economy is struggling.

I hope this article not only helps to put the UK’s current economic performance into perspective, but also makes people aware of the utter devastation that awaits European industrial production if we continue down the path to net zero before the technology exists

Enjoying The Critic online? It's even better in print

Try five issues of Britain’s newest magazine for £10

Critic magazine cover