Business
Energy Crisis Undermines Climate Change Intent Of Nations
October 9, 2021
November 26, 2024
Germany narrowly avoided a recession in the third quarter of 2024, as official data released Wednesday showed a modest 0.2% growth in GDP.
The increase, driven by higher government and household spending, comes after a revised 0.3% contraction in the second quarter, according to Germany’s Federal Statistical Office (Destatis).
While this uptick offers some relief, the broader outlook remains bleak. The International Monetary Fund (IMF) projects zero growth for Germany this year, making it the weakest performer among major economies.
Compounding Germany's economic woes is the sharp decline in profits at Volkswagen, the country’s largest manufacturer. For the first time in its 87-year history, the automaker is considering closing domestic factories and cutting thousands of jobs.
Volkswagen reported a 21% drop in operating profit for the first nine months of 2024, falling to €12.9 billion ($14 billion), primarily due to restructuring costs and weak demand in China, where it is losing market share to local electric vehicle (EV) brands. Vehicle sales declined 4% year-on-year.
CFO Arno Antlitz described the situation as a “volatile environment characterised by intense competition,” warning of "painful" but necessary decisions to restore competitiveness.
Volkswagen has proposed a 10% reduction in employee pay to safeguard jobs and plans to discuss potential plant closures in Germany with labour unions. Negotiations are set to continue, with strikes looming if no agreement is reached by December 1.
Volkswagen's challenges reflect larger issues in Germany’s private sector. A recent survey by S&P Global and Hamburg Commercial Bank revealed the steepest drop in employment across manufacturing and services in nearly 4.5 years. Business and consumer confidence also remain low, with pessimism weighing heavily on economic momentum.
Economists like Marcel Fratzscher, president of the German Institute for Economic Research, point to a "mental depression" gripping the nation, which may be exacerbating the country’s struggles in the short term.
Volkswagen’s difficulties are emblematic of a broader crisis in Germany's automotive sector, which contributes 5% of the nation’s GDP and employs 800,000 people, nearly 37% of them at Volkswagen.
The German auto industry, long a symbol of the country’s industrial strength, is now grappling with high labour costs, increased global competition, and the transition to electric vehicles.
A spokesperson for Germany’s auto association VDA recently described the situation as part of a larger crisis in Germany’s business environment, highlighting systemic challenges that threaten the country’s economic model.
Sour
