Germany’s key IFO index suggests that business confidence has reached a 15-month high, but growth in Europe’s largest economy remains stubbornly flat – with worrying signs building in its key automotive industry.
Morale among German managers quizzed by Munich’s IFO Institute rose to 89 points in August, its highest value since May 2024, with their current situation viewed as weaker than future prospects.
IFO president Clemens Fuest said the recovery of the German economy remains “weak” but that firms were “expecting that there will be [fresh] impulses in the autumn and next year”.
Other analysts are less optimistic, pointing to a further 0.3 percentage point shrink in the economy in the second quarter and growing signs of structural osteoporosis in the automotive industry that drives the German economy.
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Squeezed by Chinese competition, US president Donald Trump’s tariffs and lower orders and sales, a once-booming industry is now characterised by bleak announcements and job losses.
Luxury carmaker Porsche has announced the cancellation of expansion plans at its high-performance Cellforce battery subsidiary, letting go around two-thirds of the 300-strong workforce.
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“Porsche is not pursuing its own battery cell production for reasons of volume and lack of economies of scale,” said Oliver Blume, chief executive of both Porsche and its majority shareholder, Volkswagen.
After Porsche came news that leading supplier Schaeffler is closing one factory and shrinking another, with nearly 800 jobs lost in total. The job losses are part of Schaeffler rescue plans to cut 4,700 jobs worldwide, 80 per cent of which will be lost in its home German market.
Meanwhile, Gerstungen, another of Germany’s leading automobile industry suppliers, announced its 600 workers faced an uncertain future.
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The company, which specialises in cast alumninium parts for bodywork, transmissions and engines, entered administration in February 2024 and already cut around 400 jobs. Administrator Romy Metzger said on Monday that none of nearly 150 firms contacted were interested in investing, making “things look at the moment more like the end rather than a happy ending”.
Summing up the outlook on Tuesday, Germany’s Automobilwoche trade paper announced: “Things are going to get unpleasant.”
In June, a survey of auto market suppliers found 79 per cent gauged the current situation as bad or very bad, while two-thirds expected a drastic correction in their industry in the coming two years.
One in two viewed their Chinese competitors as now having “a competitive advantage that can no longer be caught up with”.
Consulting firm Berylls concluded in its report that “2025 will be as critical to suppliers’ existence as the pandemic crisis”, with squeezed margins increasing the risk of insolvency.
Already, talks are under way between leading automobile suppliers with players in Germany’s booming defence industry, with a view to pivoting from civil toward military production.
Defence company Hensoldt, which manufactures sensors for surveillance missions, has already spoken openly of how its firm might “benefit from the difficulties in the automotive sector”.
In February, struggling train company Alstom announced that an eastern German factory would be taken over by defence firm KNDS to produce components and modules for tanks.
