German economy at risk as companies plan to leave country

by Nick Alipour

A growing number of businesses are moving jobs and production abroad, with many others considering taking concrete measures, a study by the Federation of German Business (BDI) found, as concerns about the German economy continue to grow.

While 16% of the medium-sized companies interviewed by the BDI have already initiated steps to relocate parts of their business, the study found that another 30% are considering following suit.

“Almost two-thirds of the companies we interviewed consider prices of energy and resources to be among the most pressing challenges,” said BDI President Siegfried Russwurm.

“Electricity prices for businesses have to fall reliably and permanently to a competitive level, otherwise the [green] transformation of businesses will fail,” he said, adding that it was the “the responsibility of politicians to improve the conditions for businesses in Germany.”

Similar concerns have surfaced after the US released its $500 billion heavy Inflation Reduction Act (IRA), offering generous subsidies for the green industry.

In response to the IRA and surging energy prices, electric car giant Tesla scraped some of its ambitious plans to build its biggest factory for batteries near Berlin and announced in February that it would focus on the US market instead.

Concerns about Germany’s economy and its competitiveness on the global scale have also recently surfaced as the European Commission predicted last month that the country would be among the eurozone’s slowest-growing economies in 2023, with high energy costs and the EU’s carbon prices repeatedly cited as reasons for undermining the country as a location to do business.

“We’re already observing that investment into energy-intensive industries has fallen significantly in Germany,” Clemens Fuest, the president of the Ifo Institute, Germany’s leading economic research institution, told Augsburger Allgemeine in April.

German Economy Minister Robert Habeck has taken an active stance on the matter.

Last month he proposed a bundle of measures to reduce the price of electricity for businesses, including temporary subsidies. On Monday, Habeck announced that German businesses would be able to apply to a ‘Carbon Contracts for Difference scheme, which will subsidise the transition towards a carbon-neutral production process for selected applicants.

Meanwhile, the BDI has clarified that it sees the need for more comprehensive reforms.

“For further investment, industries in Germany require slashing of red tape and targeted tax cuts,” Russwurm said on Monday.

*first published in: Euractiv.com