Germany’s industrial sector has made headlines for years – none of them good. Now, a new report by consultancy EY (Ernst & Young) lays bare the full extent of the economic deterioration in what was once the Federal Republic’s growth engine.

Germany’s postwar success was built on the precise application of technological knowledge to business models—especially in engineering disciplines such as mechanical, electrical, and automotive engineering. For decades, a powerful alliance of responsible entrepreneurship and pragmatic politics ensured access to open markets and reliable, affordable energy. This was the foundation for the internationally revered “Made in Germany” label—an unrivaled benchmark in high-value industrial sectors.

A Unique Collapse

Has Germany succeeded itself to death? Has prosperity dulled its sense of purpose and eroded the very values that once underpinned its success? The economic facts suggest as much. Since 2017, productivity—the most important indicator of long-term economic performance—has flatlined. The country is no longer improving. EY’s latest “Industrial Barometer” provides the hard numbers behind Germany’s industrial unraveling.

The first shock is immediate: within just one year, Germany’s industrial sector shed 100,000 jobs—well-paid positions whose loss will also hit public finances as recession erodes tax revenues. The automotive industry alone laid off 45,400 workers, or 6% of its workforce, amid plant closures at Volkswagen and sweeping cost-cutting measures at BMW and Mercedes. The bottom, it seems, is nowhere in sight.

Today, only 734,000 people remain employed in Germany’s automotive industry. This once-core sector faces a bleak future. A mass exodus of skilled labor looms, as German firms lose competitiveness due to the ongoing energy crisis and regulatory overreach from Brussels. Meanwhile, Chinese manufacturers like BYD are moving aggressively into the yawning gaps left by Germany’s self-inflicted retreat.

No Sector Is Spared

EY’s experts cite new labor data from the Federal Statistical Office: since 2019, German manufacturing has lost 217,000 jobs—a 3.8% drop. Mechanical engineering employment declined by 2.5%, while the metal sector lost 18,700 jobs, a 2.1% reduction from the previous year. Employment in the chemical industry also fell by 1.6%. “Losses are widespread, but particularly severe in Germany’s key industries,” said Jan Brorhilker, EY Germany’s Managing Partner.

The slight 0.2% decline in industrial turnover in Q1 might suggest stabilization—but Brorhilker warns against complacency. Export figures were distorted by front-loading to beat new U.S. import tariffs, which will likely depress Q2 results. On top of that, the U.S.-China trade war is already causing collateral damage to German firms.

The Causes Are Largely Homegrown

EY confirms what insiders have long known: Germany’s industrial malaise is almost entirely self-inflicted. High energy and labor costs, coupled with excessive regulation, are suffocating businesses. Weak demand across a stagnating Europe only makes things worse. Chinese competition is intensifying, and U.S. market uncertainty continues to rise.

Meanwhile, American industrial policy is moving in the opposite direction—with lower taxes and deregulation drawing capital and manufacturing activity back to U.S. soil. For German firms already eyeing relocation, the contrast is stark—and persuasive.

The Middle Class Bears the Brunt

The situation is especially grim for Germany’s small and mid-sized firms—the vaunted Mittelstand. While large corporations still have reserves, many family-owned businesses now face existential threats. Job losses affect not just factory workers but entire supply chains, from subcontractors to skilled trades. According to EY, 72% of the layoffs occurred in small and medium enterprises—signaling that the economy’s shock absorbers are failing.

A Government Without a Compass

The German government’s response has been symbolic at best. Instead of slashing red tape, it piles on new regulations. Discussions around a so-called “offset mechanism” to counter U.S. tariffs are yet another example of policy theater with no substance. The real issues—excessive taxation, a lack of planning certainty, and paralyzing bureaucracy—remain unaddressed.

If this trend continues, Germany will enter a phase of accelerated deindustrialization. By then, the paths leading to more competitive destinations will be clearly visible to any company capable of moving capital abroad. “Companies are under massive pressure,” Brorhilker warns, predicting an additional 70,000 job cuts this year, especially in machinery and automotive, where investment appetite is collapsing. He closes with a note of forced optimism: “German industry has been written off before—and has always shown remarkable resilience.”

That’s true, historically. But in the past, German politics could still forge consensus across ideological lines and place economic reality above wishful thinking. Those days, it seems, are over.

______________
Thomas Kolbe, born in 1978 in Neuss/ Germany, is a graduate economist. For over 25 years, he has worked as a journalist and media producer for clients from various industries and business associations. As a publicist, he focuses on economic processes and observes geopolitical events from the perspective of the capital markets. His publications follow a philosophy that focuses on the individual and their right to self-determination. Follow him on Twitter/X: https://x.com/ThomKolbe.