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The recent weakness in the German manufacturing sector

Author

Listed:
  • Marco Flaccadoro

    (Bank of Italy)

Abstract

This paper studies the weaknesses of the German manufacturing sector in recent years. Three factors weigh more heavily there than in the rest of the euro area. First, higher gas prices penalized German energy-intensive manufacturing firms more than those of other countries, owing to the German chemical sector's greater reliance on gas and strong interconnections with other energy-demanding industries. Second, the impact of weak global demand was stronger in Germany due to its higher trade openness. Third, the automotive sector – which has suffered a lacklustre demand since 2018, also as a result of the uncertainties surrounding the transition to electric vehicles and of the increasing competition from Chinese car manufacturers – is twice as relevant for manufacturing in Germany than for the euro area as a whole. An econometric analysis shows large spillovers from the German industry to the manufacturing sectors of other euro-area economies. All three of these root causes of German manufacturing weakness could have long-lasting effects if they remain unaddressed.

Suggested Citation

  • Marco Flaccadoro, 2024. "The recent weakness in the German manufacturing sector," Questioni di Economia e Finanza (Occasional Papers) 902, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_902_24
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2024-0902/QEF_902_24.pdf
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    More about this item

    Keywords

    German economy; energy prices; foreign demand; industrial sector;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F10 - International Economics - - Trade - - - General

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