Germany's Deindustrialization: Shrinking Since 2018

The finding: industry is shrinking

Production below the 2018 level

German industrial production sits around 10 percent below its 2018 level, the previous peak. This is not a single weak year, but a decline stretching over almost a decade.¹

Energy-intensive industry is collapsing

The base-materials industry is hit even harder: energy-intensive production fell 15.2 percent from February 2022 to March 2026, almost twice as much as total industry. Where energy is the biggest cost block, the location disadvantage bites hardest.²

Already the fourth year of decline

In 2025 industrial production fell again, down about 1 percent in the first eleven months, the fourth consecutive year in the red. Four straight years of contraction are unusual for an export nation and feed the suspicion of a structural, not merely cyclical, problem.³

Chemicals as an early-warning system

The key chemical sector is not escaping the crisis: in 2025 production fell 3.3 percent and capacity utilisation was only 72.5 percent, far below the profitability threshold. As an energy-intensive leading indicator, chemicals send a clear warning signal.⁴

Capital is leaving

Foreign investors pull back

Capital is voting too: foreign direct investment into Germany roughly halved in 2024 to about 43 billion euros, from 72 billion the year before. When international investors hesitate, industry lacks the money to renew itself.⁵

A structural break since 2022

The Bundesbank speaks of a statistically significant structural break in inflows since 2022. Since the energy-price shock, Germany has become measurably less attractive as an investment location, not just temporarily but lastingly.⁶

Four in ten industrial firms prefer to invest abroad

According to the DIHK, 42 percent of industrial firms plan to invest abroad, and for 35 percent cost-cutting is the main motive, the highest reading since the financial crisis. Investment increasingly goes where energy and labour are cheaper.⁷

Even family firms weigh leaving

Even family businesses, the backbone of the economy, are wavering: according to the Foundation for Family Businesses, more than 40 percent of the largest family firms are considering moving part or all of operations abroad. Preferred targets are the USA, Poland, India and China.⁸

The names that are going

Volkswagen cuts deeply

Europe's largest carmaker is shrinking at home: at the end of 2024, VW agreed to cut more than 35,000 jobs in Germany by 2030, the biggest restructuring in its history. When the flagship of German industry is cutting, it is a symbol with signal effect.⁹

BASF invests in China instead of at home

Chemical giant BASF opened an 8.7-billion-euro plant in Zhanjiang, China in 2026, while cutting around 2,800 jobs at its Ludwigshafen home base. No other example shows the shift of capital and capacity so clearly.¹⁰

ThyssenKrupp shrinks its steel arm

At Germany's largest steelmaker, around 11,000 jobs are going, and capacity is falling from 11.5 to under 9 million tonnes. Cheap imports and high energy costs are hammering the sector that once formed Germany's industrial foundation.¹¹

Bosch cuts tens of thousands

The world's largest auto supplier, Bosch, plans to cut up to around 22,000 jobs in Germany by 2030. The costly switch to electric mobility meets weak demand and high location costs, a pattern running across the supplier industry.¹²

Miele moves to Poland

Even premium brands are relocating: Miele is moving washing-machine assembly to Poland and cutting around 700 jobs in Gütersloh by 2027. When a symbol of "Made in Germany" shifts core production abroad, it is more than an isolated case.¹³

Tyre makers close plants

International groups are retreating too: Goodyear is closing two German plants with around 1,750 jobs, after Michelin had earlier wound down several sites. High costs and import pressure make Germany unprofitable as a production location.¹⁴

But industry remains strong

Still about a fifth of value added

Against the doom thesis stands the weight of industry: manufacturing still accounts for around 19.9 percent of gross value added. That makes Germany's industrial share markedly higher than in most other large economies.¹⁵

With services, a quarter of the economy

The German Economic Institute (IW) calculates that industry plus industry-related services make up around a quarter of economic output, far more than in the US or France. Those who speak of collapse underestimate how deeply the industrial base is still anchored.¹⁶

Highly productive, but too expensive

The real problem is not capability: German industrial unit labour costs are 22 percent above the average of comparison countries. Germany is losing not because it produces badly, but because it produces too expensively.¹⁷

Energy as the core disadvantage

On top comes the energy price: electricity for industry in Europe is roughly twice as expensive as in the US and around 50 percent higher than in China. As long as that gap remains, energy-intensive production in particular relocates almost inevitably.¹⁸

Structural break or transformation?

Transformation, not collapse?

Not everyone sees a decline. ifo president Clemens Fuest calls talk of a "sick man" overblown and speaks of a retreat of manufacturing rather than deindustrialisation, though German car production now reaches only about two-thirds of its 2018 level. The substance is there, he argues, but must reinvent itself.¹⁹

The pessimistic reading

Others are more alarmed: the DIW research institute considers a combination of recession and continued deindustrialisation increasingly plausible, with more short-time work, layoffs, closures and insolvencies. The real debate runs between "bogeyman" and genuine danger.²⁰

Our read: the upheaval is real

In our view the truth is uncomfortable: it is not a full collapse, but not a harmless transformation either. The structural break already shows in the insolvencies: Germany Insolvencies counts 14,675 opened corporate insolvencies by May 2026, with the western industrial regions at the top. Those who fail to steer now risk relocation turning into permanent loss.²¹