The Sputtering Growth Engine of Europe

For the German industry, there’s no refuge from the growing economic storm.

The command center at the Otto Junker GmbH metals plant rises in sharp contrast to the strident and whiffy factory floor, where until just a few weeks ago workers managed various machines independently. The new mines are silent, with no oil stink, and there’s still room for a coffee maker. The downside? The control room boss may finish his coffee alone, as to run the machines, just one person is sufficient, which has been reduced from about a half-dozen.

The 95-year-old company situated in Simmerath, very close to the Belgian border—is getting ready for storm clouds gathering over German industry. According to the Chief Executive Officer, Bernward Reif, Otto Junker, manufacturer of high-grade castings and equipment for the foundry and semi-finished product industries must acclimatize to a changing economy by recovering the productivity of its 480 employees. During investing in technologies like 3-D printing and wireless apps, it has urged him to recommend initiatives like building the control room and transferring more work to its division in the Czech Republic.

“The environment is more volatile,” Reif says because he surpasses newly cast metal pumps which are too hot to touch. “It means we have to become more productive and flexible.”

There are companies ranging from small family-owned engineering experts to universal giants such as Volkswagen AG. These industries are striving to exist like they have done in their past. They are modernizing themselves to meet the demands of a changing global bid. But this time, the stakes appear higher because the world is driven by trade clashes and because of value moves from old-school engineering—Germany’s usual strength—to digital technologies.

Currently, the country is facing difficulties in the space of its export-focused industrial base. Germany is highly dependent on selling manufactured goods. But after facing the challenges created by Donald Trump’s America First protectionism and China’s decelerate, the country is at greater risk than neighbouring France.

The time-consuming challenges may be even more troublesome. For example, transport infrastructure is disintegrating, data networks are unpredictable, the population will get shrinking in the impending decade, and the vital auto industry will be unimportant by the surfacing of self-driving electric cars.

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Peter Wells, a professor at Cardiff Business School says, “On top of the normal level of investment, they’ve got the additional demand of trying to find the right answer for these new technologies. German industry has been quite firmly in denial about the prospects for electric cars,” and now is trying to get closer of it.

The damages are undeniable. On Thursday, the European Central Bank declared a new motivational program and turned down its 2019 forecast, calculating its growth of just 1.1 percent. German industrial productivity reduced 3.3 percent in January with a third immediate decline. At the end of 2018, the country narrowly circumvented a recession after automotive jams from emissions changes caused a reduction in the third quarter. Additionally, the growth is expected to be the weakest since 2013 this year. It is stimulating the government to suggest a national industrial policy which is for the first time in Chancellor Angela Merkel’s 14 years in power.

Top Trader Germany

Exports to leading markets, 2018

Still, Germany is good at adaptation. After World War II, it emerged to become the industrial motivation of Europe, and the assimilation of the communist East after the fall of the Berlin Wall 30 years ago has been highly successful. Its workforce is among the world’s most competent and skilled, and its education system comprises 10 universities on the Times Higher Education rankings of the world’s top 100 universities.

“We have an amazing wealth of possibilities in Germany, which I’d venture to say doesn’t exist anywhere else,” says Joachim Schulz, CEO of Aesculap, a manufacturer of surgical tools such as scalpels, forceps, and bone saws.

The pressure in the automotive sector is more and here the manufacturers and component makers are mixing up to adapt. Schaeffler AG Schaeffler Group, the manufacturer of rolling element bearings for automotive, aerospace and industrial uses, is reducing 700 jobs in Germany during renovating its parts business. It planned at reducing confidence in the combustion engine. Transmission specialist, ZF Friedrichshafen AG wants to boost its expertise in driver-assistance, and for this, it is trying to buy Wabco Holdings Inc. for around $9 billion. Also Continental AG is thinking to a sale of part of its power train business to enhance investment in electronics.

The most radical changes are underway at Volkswagen is also doing a lot of changes to progress as it has lost its company’s and the broader Made in Germany brand’s fame in the 2015 emissions cheating scandal. The world’s largest automaker declares that it will spend $50 billion to develop scores of battery-powered cars by 2025 and improve their factories to build them.

Recently, the government planned its industrial strategy concerning to fears that Germany will get constricted by the U.S. and China as the global economy adopting modern technologies. The program aims to protect German leadership in major sectors like metals and machinery and investing in modern technologies like artificial intelligence, which is the most striking technology behind development today.