Germany's Industrial Slump Tests the New Coalition's Reform Mandate
Berlin faces a sixth consecutive quarter of manufacturing contraction as energy costs, Chinese competition and a stretched fiscal envelope converge.
Federal Statistical Office data released this morning showed industrial output declined 0.8 percent month-on-month in April, with the automotive sector contracting at its fastest pace since the pandemic. Year-on-year, German manufacturing has now shrunk for six consecutive quarters.
Chancellor Merz's coalition has staked its first hundred days on a €100 billion industrial competitiveness package, but Bundestag approval remains contingent on Green Party support for revised debt-brake provisions. Negotiations have stalled twice this month.
Analysts at Berenberg argue that the structural cost disadvantage facing German manufacturing — energy prices roughly double those in the United States, and labour costs that have decoupled from productivity growth — cannot be addressed by short-term subsidy.
The euro's recent strength compounds the pressure. BMW, Mercedes-Benz and Volkswagen have all guided toward weaker second-half deliveries, citing both the currency and intensifying competition from BYD, Geely and Xiaomi in their core export markets.
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