The intensity of German recession it represents the big variable for forecasting eurozone growth in the coming months. If the weakness of the first country in order of industrial importance in Europe were to continue for a long time, the risk of contagion on other economies, above all the Italian one, would be almost inevitable. The drop in domestic demand and the slowdown in trade relations with China weigh on the German economy.
As regards the strategic automotive sector, in the first five months of 2023, the four big German automakers produced around 500.000 fewer vehicles than in the same period of 2019. Germany is Italy's most important trading partner, in 2022 trade between the two countries reached a record level of 168 billion euros, +18% in trend terms. They are now two deeply integrated and complementary economies,” he explains Alexander Marino, general secretary of the Italian-German Chamber of Commerce, one of the most influential bodies in terms of economic relations between Rome and Berlin.
What is mainly causing the slowdown in the German economy?
“There are a number of contributing factors, first and foremost high inflation has reduced purchasing power in Germany as well, weakening domestic demand. The increase in energy costs and a contraction in demand from abroad also had an impact. The construction sector is also showing signs of a slowdown”.
To what extent will Italy be affected by the German slowdown in the coming months?
“Some sectors of Italian manufacturing are certainly more exposed than others, such as mechanical components and the machinery sector. The drop in domestic consumption could also have visible effects on Italian food exports, while the contraction in the building sector will have an impact on the Italian supply chains connected to building products”.
Which sectors are suffering the most in Germany?
“The food industry is slowing down a lot, clothing is down, the retail trade is in trouble. While in catering there are still no contractions on the horizon. For the automotive and components sector, however, several issues intersect. Certainly the German automotive sector has not overcome the production gap compared to 2019, but it must be said that a reconversion of the supply chains towards the electric car is underway on the global market which is inevitably changing many fixed points compared to the past".
Are investments by large German manufacturers also slowing down?
“The President of the Union of German Chambers of Commerce and Industry, Martin Wansleben, recently announced a survey of a sample of 21 German companies. Only 28% of companies have communicated that they have planned new investments and even 24% announce that they are reducing the company share of investments. With these percentages of investments it will be difficult to compensate for the losses of the Covid period. The increase in interest rates is putting many industrial plans on hold, especially for spending on new machinery”.
What impact will the transition underway in the automotive sector have on Italian exports to Germany?
“Electric cars require much smaller components than the internal combustion engine. The challenge for Italian companies is to remain suppliers of new electrical technologies as well. It's a complex issue, also because the future doesn't just concern the transition to electric power. In the medium term, the scenario will be that of the "driverless car", the car without a driver and more generally of "sharing mobility", new paradigms that will completely change the automotive industry. Partnerships between automakers and software technology companies will become crucial. Analysts predict major changes in the German economy too: within a few years, employment levels in the automotive sector could halve. A compensation with the new job offers triggered by the electricity, recharge and battery sector is plausible. In any case, for the moment there is no employment problem in Germany, on the contrary it is difficult to find a workforce”.
Will the remodeling of global value chains, especially in terms of shortening supply chains, make trade relations between Italy and Germany more solid?
“The return to Europe of some processes could benefit the countries closest to Germany and strengthen European industry in general. A new logistical centrality of Italy is therefore foreseeable, in a logic of greater flows into and out of Germany towards Africa and the Middle East, exploiting the network of Italian ports in the Mediterranean. The German government has clearly stated that China has changed and will inevitably have to change Germany's economic and commercial policy as well, with a view to reducing its strategic dependence on Chinese products. The main problem concerns the dependence on Chinese raw materials, but at the moment it does not seem easily solvable. Bear in mind that Germany's first trading partner is China, with almost 300 billion in trade."
Which German industrial sectors could bring some production back home or to the European Union?
“The German government considers pharmaceuticals, the production of semiconductors and microchips to be sensitive areas. For the latter, rare earths are needed, materials that Germany imports almost entirely from China. It won't be easy to change the structure of German imports in a short time”.
Are German entrepreneurs more concerned about persistently high inflation or a possible prolonged recession?
“At the moment, German entrepreneurs are expressing greater concern about the high rates that are freezing investment choices. They fear, rightly, that in this decisive phase in the energy, industrial and technological transition it is necessary not to miss the train of strategic investments, on pain of losing German competitiveness in the long term. Primarily in the automotive sector, where they see the potential risk of being overtaken in some technologies by Chinese or Korean manufacturers”.
