The crisis gripping the German economy deepened yesterday when carmaker Volkswagen said it might close factories in the country for the first time in its 87-year history.
VW said major cost-cutting measures were needed, while separate figures showed the broader eurozone manufacturing sector was “going downhill, and fast”.
Europe’s problems contrast sharply with those in Britain, where manufacturers are moving at the fastest pace in more than two years.
Germany, the continent’s largest economy and once an industrial powerhouse, is in the throes of a prolonged manufacturing crisis that has led to it being dubbed “the sick man of Europe.”
Production: VW workers on the assembly line at their German base
This is partly because China has gained ground and competed with its automotive sector. VW is Europe’s largest industrial employer and largest carmaker in terms of revenue.
VW CEO Oliver Blume announced his cost-cutting plan yesterday: “The European automotive industry is in a very demanding and serious situation. The economic environment has become even more difficult and new competitors are entering the European market.
‘In addition, Germany in particular, as a production centre, is falling further and further behind in terms of competitiveness.’
VW said it would try to break its pact with workers to keep jobs safe until 2029, sparking a showdown with a powerful union that vowed “fierce resistance.”
Carsten Brzeski, global head of macroeconomics at ING Research, said the carmaker’s decision highlighted the consequences of years of economic stagnation.
“If an industrial heavyweight is forced to close factories, it may be a long-awaited wake-up call that (Germany) must significantly step up economic policy measures,” he said.
The scale of the crisis was underlined by the closely watched manufacturing purchasing managers’ index (PMI) report.
On a scale where 50 separates growth from contraction, the eurozone scored just 45.8, showing that the sector is contracting.
Germany and France, the currency bloc’s two largest economies, were the main drags, suffering from increasingly sharp slowdowns. Germany’s reading of 42.4 was the weakest in five months, while France hit a seven-month low of 43.9.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which compiled the eurozone figures, said: “Things are going downhill, and fast. The manufacturing sector has stagnated.
“With the recession so widespread, there is little sign that things will improve any time soon.”
He said the German industrial crisis was “lasting longer than expected” and that China was “the main culprit”.
In Germany, Volkswagen’s problems will increase pressure on Chancellor Olaf Scholz.
Scholz suffered another blow yesterday when regional election results gave the far-right AfD party first place.
But as pessimism about the eurozone deepened, the UK manufacturing PMI rose to 52.5 in August from 52.1 in July.
