'There is no deindustrialisation in Germany, but the retreat of manufacturing is worrying'
Clemens Fuest, President of the Ifo Institute: 'It is a high productivity sector with good jobs, and it is what we do best. The Green Deal is not going in the right direction and has not generated the promised boom, but there are also good things. Good Merz on foreign policy and defence, disappointing economic agenda'
Key points
For Clemens Fuest, president of the Ifo Institute, there is 'no deindustrialisation' in Germany, but the retreat of the manufacturing sector is worrying.
Ifo and other leading German institutes have raised their growth estimates for Germany: is the country out of recession?
Not really. The revisions are very small and for 2025 we are very close to zero: the German economy remains stagnant. For 2026, growth is expected to be close to 1 per cent, but only thanks to increased government spending. It is therefore unclear whether this will only be a very short-lived, debt-fuelled rebound. The real questions are: will there be reforms? Will the resources go to types of spending, such as investment, that will make the return to growth sustainable? Currently we do not see these reforms, so at the moment the prediction is that it will be a very short-lived rebound.
Particularly in manufacturing, labour force cuts continue. Is there a risk of deindustrialisation?
I would not call it deindustrialisation, but there is a retreat of manufacturing. And that is a problem because it is a high productivity sector with good jobs. At the same time we are seeing the growth of the public sector, the health sector and care for the elderly. This is partly due to demographic change, we have more and more elderly people who need more hospitals and care for old age. But there is also a loss of competitiveness, due to high costs, loss of technological advantage, rigidity in planning processes, bureaucracy. And this is a cause for concern.
There are those who argue that a bit of deindustrialisation would do good for a Germany too dependent on manufacturing. I think you disagree.
I am sceptical. In the major OECD countries, we have seen a tendency to shift to services. The question is: does it work to create high value-added jobs? In the US, we have seen it in digital, which has grown very quickly and helped the economy. But that is their comparative advantage. What is Germany's comparative advantage? It is manufacturing: that is what we do best. I don't think all countries have to move in the same direction. German industry has always been bigger than in other countries: it is a market result. The question, for Germany as for Italy, is: what happens if our key sectors, like cars or mechanics, shrink? It is not necessarily a bad thing, if we create new sectors that generate value. But that is not what we are seeing.
To hear many conservative parties, the Green Deal seems almost the cause of everything that is wrong. Is that so?
It is fair to ask whether the Green Deal is going in the right direction and I think the answer is no. There are some good things and some bad things, but it is inappropriate to blame only the Green Deal. The Commission and some national governments, including Germany, promised that decarbonisation would create a boom. It was always wishful thinking and it was always wrong. Decarbonisation replaces an existing stock of capital, e.g. coal-fired power stations, with an equivalent stock of capital, if all goes well. It does not create additional capital. The Green Deal is inconsistent in many ways and too bureaucratic, but we have other problems: we are losing competitiveness to China and we are falling behind on technology. We have invested too little in new sectors and the key to the future is not green, but digital, where we have lost growth opportunities.
