Germany is sinking, one step away from absolute deindustrialization, closer to economic collapse

The German economy is sinking deeper and deeper into recession. In its latest business survey, the German Economic Institute (IW) also reports increasing pressure on the labor market. Meanwhile, no reforms are expected from political leaders. The IW, based in Cologne, published its bi-annual business survey of over 2,500 companies, and the results are disappointing. The new analysis paints a gloomy picture of the state of the German economy: the recession is deepening across all sectors. No part of the economy remains untouched.

No recovery for investments

The picture regarding corporate behavior in terms of investment and workforce planning is particularly revealing. Depending on the sector, 36% to 41% of companies plan to reduce jobs next year—with industry in a particularly worrying situation: 41% actively expect workforce cuts. Only 18% of companies are considering expanding jobs. The loss of industrial jobs had already reached alarming levels last year: 70,000 jobs were lost in key industrial sectors, from automotive to engineering. This trend is expected to intensify in the coming years, unless German location policy is fundamentally corrected.

Three characteristic examples show the scale of the problem: Volkswagen intends to cut about 35,000 jobs by 2030. Bosch plans to cut about 22,000 positions in the same period. Siemens has announced another 3,000 job cuts in the coming years. And these are only the large companies visible in the media. The IW survey sheds light on the "engine" of the economy—the Mittelstand (small and medium-sized enterprises). It confirms what bankruptcy statistics reveal: it is expected that Germany will record about 25,000 business bankruptcies this year, a new record.

The base of German industry is cracking

The reduction in industrial jobs is more than a statistic; behind the stark numbers lies a dangerous social imbalance. These jobs represent high added value, technological essence, and international competitiveness. Their disappearance usually triggers a chain reaction: for every industrial job lost, approximately four more positions in the supplier, service, and consumer sectors come under pressure. The loss will also affect tax revenues once the effects of recent tax increases are factored in. This sentiment is immediately reflected in investment plans: about one-third of companies plan to invest less next year, while only 23% intend to increase their investments in Germany.

The landscape is contradictory

Regionally, the picture is divided. While Northern Germany and Bavaria show restrained optimism, the northeast and industrial regions, such as North Rhine-Westphalia, show no signs of recovery. The IW report comes at one of the worst times for the German government. Despite massive debt-funded spending, no growth was reported for the third quarter. Economic policymakers are facing a hard lesson. Wealth is not generated by artificially created state demand, but only through private sector investment in free markets. And this is precisely where the IW analysis grasps the core of the problem. It shows that policymakers have failed to boost private investment, even despite the multi-year, multi-billion euro debt program. On the contrary, the trend continues to be downward.

The recession is confirmed

IW economist, Professor Michael Grömling, summarizes it: "The German economy remains in a deep recession." This, he says, is a serious warning—for the labor market and for the overall economy. The main barriers, according to Grömling, are on the investment side. He calls for what many entrepreneurs consider necessary: a reduction in bureaucratic hurdles. Added to this are structural issues, such as high energy prices, rising raw material costs, and increasing global trade tensions, a burden that significantly weakens Germany's competitiveness. It is noteworthy that only the US managed to pressure China to temporarily suspend the threat of a rare earths export ban—not German policy. This highlights a structural leadership problem in Berlin and Brussels.

European politicians have failed to develop a trade strategy that serves the interests of exporters—diverse sectors, new markets, and strong partnerships. Instead, attention to the agreements with South America through Mercosur, which promised developmental empowerment, has largely faded. Repeatedly, Brussels prioritizes climate protectionism, even at the expense of domestic industry. For an economy like Germany's, which relies heavily on exports, this is likely to intensify recessionary trends.

Where is the reduction in bureaucracy?

The problems are everywhere. The discussion about reducing bureaucracy has stalled, as has almost every other reform the government promised. Just a few weeks ago, the Chancellor promised to reduce annual bureaucratic burdens by 25% and reduce the public sector by 8%. In reality, approximately 100,000 new public sector positions were created last year, and since 2020, half a million additional employees have been added at taxpayers' expense.

Technological efficiency from artificial intelligence and automation remains invisible—so far, taxpayers see no benefit; quite the opposite. These announcements are now largely forgotten. The issue is de facto dead—presumably because the government's new debt package, which injects 50 billion euros into the system every year, requires the further expansion of the state mechanism rather than its rationalization.

The regime's defense

The IW survey shatters any hope for a quick economic recovery. In essence, it confirms what has been visible for years: excessive bureaucracy amidst a green transition, increasing fiscal burdens, and a self-inflicted energy crisis—caused by the withdrawal from cheap Russian gas, the end of nuclear energy, and a highly centralized energy market design that requires ever more state intervention to offset the instability of renewable energy.

The problem is structural, deeply rooted, and permeates operational processes. Even a heavily subsidized industrial electricity price will not stop the deindustrialization of Germany. The necessary leap does not lie in Berlin but in Brussels—and it concerns the entire eco-socialist regulatory complex. Until the EU finds the courage to return to the principles of the free market, nothing will change economically.

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