A 1.8% decline in German industrial output—the sharpest plunge in more than two years—caused concern recently, leading some economists to even lower their forecasts for German economic growth.
Others are wondering whether the drop heralds larger and more lasting problems for the industrial sector, which led the German economy through Europe’s sovereign crisis, but for Stefan Schneider, Chief International Economist and Head of Macroeconomics Research at Deutsche Bank in Franfkfurt, it’s too early to jump to any conclusions.
Reindustrialization and overall industrial competitiveness, as well as their importance to Eurozone growth, are important topics today as Europe’s battered economies regain their strength. Countries like Spain and Italy are struggling to reinvent and reinvigorate industry, as it were, and for others like Greece, France and even the U.K., industry accounts for a mere 10% of economic output, according to recent Deutsche Bank research.
Yet Germany still maintains a significant edge over other countries, Schneider said, and the attributes that allowed German industry to flourish during the worst of the crisis years are still present today.
“When it comes to Germany, people always look at the car industry and industries like mechanical engineering, which are sort of the beacons of the sector, but if you go to backwoods of Germany, you will find other companies and many small- and medium-sized enterprises that are into smaller, micro-industry type production,” Schneider said. “There are lots of companies that produce very specific and sophisticated things that to a certain extent piggy back on the larger mechanical engineering or automotive sectors.”
What’s important in Germany is that there’s a “re-fertilization” both ways, Schneider said. Germany’s industrial strength is based on a “feed in-feed out” dynamic, he said, and niche expertise in selected areas means that production has not only stayed within the country, but also enabled Germany to maintain greater competitiveness than other European country.
“Take Italy, for instance. It used to have quite a successful industrial sector, but now Italy faces head-on competition with China, which produces the same goods as they do,” Schneider said. “To be successful in industry, you have to be inventive, you have to be in the lead on technological advancement and Germany has been good at that.”