Germany's industry is falling behind: Why tax relief alone is not enough

Less production, less investment: How Germany's industrial sector can grow again

Energy prices are not the only problem: What is currently slowing down Germany's industry?

Germany's industry is in a prolonged period of weakness – and the gap with several European neighbors is widening. Between 2015 and 2025, German industrial production fell by almost eleven percent, while Poland and Denmark saw strong growth. While this comparison is not a complete assessment of the countries' competitiveness – industry structure, starting levels, and statistical definitions also play a role – the significant divergence in production trends cannot simply be dismissed as a temporary dip.

The underlying causes extend further back than the energy crisis. High energy and labor costs exacerbate the burden, while at the same time weak investment, lengthy processes, and uncertain business environments stifle innovation. Simultaneously, the more stable development of industrial value creation compared to goods production demonstrates that less manufacturing does not automatically translate into an equally large loss of economic value. The crucial question is which services and skills are retained in Germany – and which new ones are developed here.

Government relief can provide companies with short-term breathing room. However, subsidies alone will not create a sustainably affordable energy supply or reliable investment prospects. For industry to grow again, companies need a compelling reason to establish new plants, technologies, and production processes in Germany. The following overview reveals the warning signals the figures indicate, what the comparison with Poland, Denmark, and Austria actually reveals, and why a recovery requires more than just financial assistance.

Neighbors are expanding – Germany is managing the backlog

Germany's industry is not just facing a cyclical problem. It is undergoing a structural transformation in which successful specialization, declining production volumes, and a diminishing attractiveness of the country as a business location are converging. This very simultaneity makes the situation difficult: not every decline in production translates into a corresponding loss of prosperity. But a shrinking industrial output over several years cannot be countered by pointing to higher-value products. The crucial question is whether Germany builds new economic substance or increasingly relies on its existing strengths.

The developments between 2015 and 2025 provide a clear warning signal. German industrial production was recently almost eleven percent below its initial level. Poland increased its production by 54 percent during the same period, Denmark by 48 percent, and Austria by 23 percent. Seven of Germany's nine immediate neighbors also saw growth. This suggests that Germany's lag is more than just a snapshot of a difficult international economic situation. However, these rates of change do not fully explain their causes: industry structure, initial levels, statistical data collection methods, and varying specializations must all be taken into account.

The economic policy challenge, therefore, is not to choose between alarmism and appeasement. It lies in recognizing the right distinctions and deriving a sound strategy from them. Energy relief measures can mitigate acute disadvantages. However, industrial renewal will only occur when companies again see a compelling reason to establish additional production processes, technologies, and capacities in Germany.

Ten years behind instead of a temporary dip

A production decline of almost eleven percent over ten years must be assessed differently than a single weak year. Economic downturns can be caused by inventory reduction, temporary weakness in demand, or supply chain disruptions. However, if production does not sustainably return to its previous level after several periods of strain, the question arises as to the growth potential of the location. This potential describes how much an economy can sustainably produce at normal capacity utilization.

As early as 2021, Germany's industrial production was around 4.1 percent below the 2015 level. This shortfall, therefore, did not originate solely with the energy crisis following the Russian attack on Ukraine. At the same time, this figure should not be overinterpreted: 2021 was still marked by the consequences of the pandemic and disrupted supply chains. The comparison thus does not prove that the entire decline at that time was structurally caused. However, it does refute an explanation that attributes Germany's industrial difficulties solely to the increased energy costs since 2022.

A longer-term perspective confirms the unusually long duration of the weakness. An analysis using data from early 2025 shows that the German manufacturing sector produced roughly 13 percent fewer industrial goods in 2024 than in 2018. This comparison uses a different starting point than the ten-year analysis and is therefore not directly equivalent. However, both demonstrate that production was not merely interrupted temporarily. Consequently, economic policy strategies must improve both current demand and the conditions for the next generation of investment.

What the neighbor comparison actually shows

The European comparative figures are particularly revealing because neighboring countries were exposed to many similar external pressures. They too were affected by the pandemic, uncertain sales markets, higher energy prices, and changes in global trade. If the results nevertheless differ significantly, simply pointing to shared crises is insufficient. National location factors and the composition of the respective industries thus gain importance as explanatory factors.

However, growth rates measure the change compared to a given starting point, not absolute industrial size. Poland's 54 percent increase does not mean that its industrial production has become larger than Germany's. Likewise, a smaller German index value does not imply a corresponding change in all industrial incomes. The comparison is primarily useful as an indication of differing development trends: in one country, production is expanding; in another, it is lagging behind previous levels.

The choice of statistical series is also important. "Industry excluding construction," "manufacturing," and "production" are not interchangeable terms. Depending on the definition, mining, energy supply, or construction, for example, may be included. Furthermore, annual averages should not be confused with individual monthly figures. A reliable location analysis therefore combines comparably defined production data with value creation, employment, and investment. The gap compared to neighboring countries is a serious indicator, but it is not a complete analysis of the causes, and certainly not proof that a single political measure could explain the entire difference.

Poland is growing through catching up and networking

Poland's industrial development cannot be reduced to low wages alone. The country benefits from its integration into European value chains, foreign direct investment, and productivity gains within companies. Furthermore, its geographical proximity to major markets is a significant advantage. This combination makes it possible to build industrial capacity while simultaneously connecting it organizationally, technologically, and logistically with other European locations.

The economic opening is significant: The share of exports in Poland's gross domestic product rose from 27 percent in 2000 to 63 percent in 2022. This figure includes goods and services and is not the same as the share of industry in gross domestic product. However, it illustrates how strongly international demand and cross-border division of labor shape the growth model. In 2023, the stock of foreign direct investment amounted to approximately 40 percent of gross domestic product.

For Germany, this development is not solely a story of loss. A Polish factory can source machinery, software, or intermediate products from Germany and thereby support German value creation. The division of labor becomes problematic where new manufacturing is permanently established abroad, while neither corresponding knowledge-intensive activities nor other productive activities develop domestically. Furthermore, Poland's success is not an infinitely sustainable low-cost model. Rising labor costs, an aging workforce, and the necessary decarbonization are also increasing investment pressure there. This example demonstrates precisely that competitiveness arises from continuous modernization and is not guaranteed by a cost advantage achieved once.

Denmark's success warrants a second look

Denmark's 48 percent increase in production between 2015 and 2025 is an important counterargument to the blanket notion that industrial expansion is no longer possible in developed European economies. However, Danish statistics have a peculiarity: the reported production of Danish industrial companies includes activities both domestically and abroad. Therefore, a rising index does not automatically imply a correspondingly large increase in manufacturing within Denmark.

Furthermore, the pharmaceutical industry significantly influences the overall result. Its weight in the relevant production index, based on the value-added structure of 2021, was approximately 20.9 percent. This makes Danish industry vulnerable to developments in a single, highly successful sector. The extent to which long-term success and short-term fluctuations can overlap was demonstrated in 2025: Total industrial production fell by 3.8 percent compared to 2024, while it increased by 4.1 percent excluding the pharmaceutical industry. Thus, a strong ten-year increase by no means precludes a weak final year.

The lessons for Germany are nuanced. First, specialization, research, and international production organization can generate significant economic returns. Second, an aggregated country index should not be equated with a nationwide industrial success story. Third, a strong concentration on a few companies or sectors carries its own risks. Therefore, Germany does not need to copy a smaller neighboring country, but rather conditions under which several technological strengths can emerge and grow simultaneously.

Austria is not a crisis-free alternative either

Austria's 23 percent increase in production between 2015 and 2025 shows that Germany's development is remarkable even when compared to a closely intertwined neighbor. However, this does not mean that Austria was on a consistently stable expansion path. In 2024, Austrian industrial production declined by 4.9 percent. In Germany, the corresponding decrease was 4.6 percent. A positive ten-year balance sheet can therefore coincide with significant current difficulties.

This difference between long-term levels and short-term dynamics is significant from an economic policy perspective. A country that previously experienced strong growth can experience a decline from a higher level of production. Conversely, a country with prolonged weakness may lose further substance without having recovered from previous losses. Therefore, neighboring countries should neither be idealized nor dismissed as insignificant anomalies. Their value as a point of comparison lies in prompting a more detailed examination of growth sectors, investment conditions, and company-related changes. A blanket ranking does not replace this analysis.

Less production does not necessarily mean less value

The most important objection to a purely quantity-oriented diagnosis of the crisis is this: Industrial production and industrial gross value added measure different things. The production index primarily reflects the price-adjusted development of goods production. Gross value added, on the other hand, describes the economic added value after deducting purchased intermediate inputs. These intermediate inputs include, for example, materials, energy, and purchased services. Wages are not deducted as intermediate inputs; they are part of the income financed by value added.

A company can therefore produce fewer standardized products and still achieve a greater economic contribution of its own. This is possible, for example, if it invests more heavily in development, undertakes more complex services, or uses materials more efficiently. Software, engineering, and other product-related services can also gain in importance. The economic value of a modern industrial enterprise then lies not only in what leaves its production line.

This distinction prevents a false equation of production volume with prosperity. However, it must not become an automatic justification for tax relief. A higher selling price alone does not prove a real increase in added value, because a price-adjusted analysis is specifically designed to eliminate general price increases. Furthermore, the worldwide profit of a German corporation must not be confused with the added value created in Germany. Foreign production can strengthen the corporation without strengthening the German location to the same extent. What matters is which services, income, and investments actually remain in the country or are newly generated there.

Value creation slows the alarm

The fact that gross value added has developed more stably than goods production is a factually important finding. According to the data from the study published in 2025, real gross value added in the manufacturing sector in 2024 was almost three percent below the 2018 level. The production index, in the same comparison, had fallen by a good 13 percent. Thus, the decline in physical industrial goods production only partially reflects the change in the overall economic activity of industrial companies.

One key explanation lies in changing business models. Machines are becoming linked to maintenance, consulting, software, and data-driven services. Companies can also outsource parts of their manufacturing and focus their domestic operations more on development, management, and marketing. This is not necessarily a statistical error. It may be a real shift in how industrial companies generate revenue and create economic value.

The more favorable development of value creation remains a limited counterargument. It, too, showed a decline over the period in question, rather than a dynamic growth trajectory. Furthermore, older studies cannot replace a current assessment. An analysis using data up to 2023 cannot demonstrate the development up to 2025; a later study up to 2024 extends the timeframe but also does not completely close the remaining gap. Preliminary value creation data are also subject to revision. A sound assessment therefore acknowledges both points: the production crisis may overestimate the immediate loss of value creation, but its longer-term consequences should not be underestimated either.

A high industrial share does not protect against industrialization

According to preliminary comparative data, in 2025 the manufacturing sector accounted for 19.4 percent of Germany's gross value added. The European Union average was 15.8 percent. Germany thus continues to possess an above-average industrial base. This strength is economically significant, but it answers a different question than that concerning the development of production output.

A share initially describes the composition of an economy. It can remain relatively high even if the sector in question stagnates or shrinks, if other sectors are also experiencing weak growth. Furthermore, value added shares at current prices must be distinguished from price-adjusted growth rates. Changes in relative prices can affect the weight of a sector without a corresponding increase in the production of goods or services.

The large industrial sector is therefore neither a guarantee of security nor a problem in itself. It is an existing strength whose sustainability must be maintained. At the same time, it increases the overall economic significance of industrial weaknesses: when a major economic sector is under pressure, this affects numerous suppliers, service providers, apprenticeships, and regions. Germany's task is not to enshrine a specific historical industrial share at all costs. It is to renew the productive base while simultaneously fostering the development of additional high-performing activities.

The energy crisis is exacerbating existing problems

The energy crisis did not cause Germany's industrial difficulties, but it significantly exacerbated them in key sectors. Between February 2022 and March 2026, seasonally and calendar-adjusted production in energy-intensive industries fell by 15.2 percent. Across the entire industrial sector, as defined here (comprising manufacturing and mining), the decline was 9.5 percent. This difference highlights the particularly heavy impact on energy-intensive production, but does not automatically quantify the effect caused solely by energy prices.

Because other factors were also at play. The construction industry, for example, influenced the demand for cement, glass, and other building materials. Demand from industrial customers impacted the chemical and metal industries. Company-specific changes could also play a role. The decline in production was particularly pronounced in glass, ceramics, and the processing of stone and earth, at 25 percent. The paper industry lost 18.5 percent, and the chemical industry 18.1 percent. In contrast, production in petroleum refining increased by 24.6 percent in the same comparison. Even within energy-intensive industries, the development was therefore far from uniform.

For location decisions, long-term expectations are paramount. A company can weather a temporary cost shock. However, if it anticipates permanently higher costs or an uncertain supply, the calculations for replacing a plant or developing new processes change. This can transform a short-term energy problem into a long-term investment problem. This transition deserves more attention than the question of whether a single energy price is currently rising or falling.

Electricity alone does not explain energy costs

Energy-intensive industries accounted for 75.6 percent of total industrial energy consumption in 2024. Within these sectors, 26.3 percent of energy use came from natural gas, 21 percent from petroleum products and oils, 18.1 percent from coal, and 15.2 percent from electricity. These figures clearly illustrate why a debate focused solely on electricity prices only partially captures the true burden.

Industrial processes don't simply require an arbitrarily interchangeable amount of energy. Crucial factors include temperature, continuous availability, technical equipment, and the function of an energy carrier within the process. Therefore, reducing electricity consumption doesn't replace a comprehensive analysis of process heat and other energy supplies. Similarly, lower energy consumption doesn't automatically translate into efficiency gains: it could also be due to reduced production.

In the long term, the electrification of suitable processes can open up new opportunities. However, its economic viability depends not only on the price of electricity, but also on investment costs, grid connections, capacity utilization, and technical suitability. A sustainable energy policy should therefore facilitate the transition to more efficient and lower-emission processes without imposing a uniform technical concept on all industries. Technological decisions require reliable overall costs and dependable framework conditions, rather than fluctuating political expectations.

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Relief measures are effective, but in different ways

The economic policy countermeasures address real cost disadvantages. These include the permanently low electricity tax for the manufacturing sector as well as agriculture and forestry, subsidies for transmission network costs, and the abolition of the gas storage surcharge. In addition, there is the expansion of electricity price compensation and the industrial electricity price for the years 2026 to 2028. The financing of the former EEG surcharge continues to be provided through the federal budget.

The permanent extension of the electricity tax relief primarily contributes to planning certainty. The previously temporary benefit would otherwise have expired at the end of 2025. Therefore, for companies already benefiting from it, this does not represent an entirely new cost reduction, but also prevents a tax increase from occurring again. The federal subsidy for transmission network costs totals €6.5 billion in 2026. However, the impact on individual businesses depends on their connection, consumption profile, existing subsidies, and supply contracts.

Electricity price compensation is not a general discount for all electricity consumption. It is intended to offset indirect CO2 costs for certain internationally exposed companies, costs which are passed on through electricity prices. The industrial electricity price supplements this instrument with its own specific requirements. Therefore, the total amount of announced relief is not the only politically decisive factor. What matters is which companies are actually reached, which cost components decrease, and when a reliable financial impact is achieved. A promised compensation improves expectations but does not resolve every short-term liquidity problem.

The industrial electricity price is not a blanket guarantee

The industrial electricity price for 2026 to 2028 is a temporary, retroactive relief measure for certain energy- and trade-intensive activities. European approval was granted in April 2026; the corresponding funding guideline entered into force in May. This instrument should not be confused with a promise that every industrial company can obtain its entire electricity demand at a single, uniform final price. Eligible consumption volumes, reference prices, and definitions determine its actual impact.

The basic structure provides relief for 50 percent of eligible electricity consumption. Electricity volumes for which electricity price compensation is claimed cannot simultaneously be taken into account for the industrial electricity price. Furthermore, companies must invest at least half of the basic aid granted in planned decarbonization measures. This is intended to ensure that the support not only covers ongoing costs but also improves future competitiveness. This approach combines short-term protection with an obligation to adapt.

Economically, the time-limited nature of the subsidy remains a key challenge. Industrial plants are typically valued over significantly longer periods than the three-year relief phase. A temporary subsidy can bridge a difficult transition and enable investment. However, it does not replace a convincing forecast for costs after 2028. Without this forecast, companies can use the support for stabilization, but will still have to postpone major expansions. The quality of the subsequent market and infrastructure conditions will therefore determine whether the bridge actually becomes a path to sustainably competitive production.

Subsidized prices do not eliminate system costs

When network charges or other components of energy prices are co-financed from the federal budget, the bills of the benefiting consumers decrease. However, the underlying economic costs do not disappear. They are simply redistributed. This can be justified if it preserves productive structures or compensates for a temporary competitive disadvantage. Nevertheless, a distinction must be made between a change in financing and an actual reduction in resource expenditure.

A sustainably affordable energy supply requires advancements in generation, grids, flexibility, and system integration. Low wholesale prices at certain times are not automatically sufficient for a business with continuous production. Likewise, inexpensive electricity is of little use if a necessary grid connection is not available in time. For investors, therefore, the overall package of availability, reliability, and cost is crucial.

Government aid also creates conflicting objectives. Overly restrictive support can exclude economically important companies. Overly broad support can tie up scarce public funds without triggering additional investment. From an economic policy perspective, relief measures should therefore be assessed based on their impact: Do they preserve adaptable capacities, enable technological innovation, and limit the risk of relocation? Or do they primarily finance continued operations without a reliable future outlook? The answer requires ongoing review and should not be a blanket rejection of all support or a blanket endorsement of every measure to safeguard existing businesses.

The decisive factor is cost per service

High labor costs are among the frequently cited burdens of German companies. However, for international competitiveness, it is not the hourly wage alone that is decisive, but rather its relationship to economic output. High wages can be sustainable if qualified employees create correspondingly high value with efficient facilities, good organization, and sophisticated products. Problems arise when labor costs rise while productivity does not increase sufficiently.

This puts the design of operational and public processes at the forefront. A skilled worker who spends a significant portion of their working time on documentation or searching for information is less frequently available for productive tasks. An underutilized machine increases the cost of the units actually produced. Rising social security contributions can further increase employment costs without improving the company's performance. However, it would be equally simplistic to declare low wages the central development model of a highly developed industrial location.

The sustainable answer lies in higher productivity and robust financing of social security. This includes better qualifications, functioning infrastructure, more efficient administrative processes, and investments in modern technology. Companies, for their part, must review their processes, management, and product portfolio. Competitiveness is neither solely a matter of government relief nor solely a matter of corporate effort. It arises from the interplay of both. Where one fails persistently, the other also reaches its limits.

Job cuts and skills shortages go hand in hand

Between the end of 2018 and the end of 2025, the number of employees subject to social security contributions in the German manufacturing sector decreased by approximately 496,000, or 7.1 percent. The automotive industry, including its suppliers, manufacturers of metal products, and mechanical engineering were particularly affected. Together, these sectors accounted for roughly three-fifths of the decline in industrial employment. The figures demonstrate that this transformation is not merely reflected in abstract production indices.

At the same time, a shortage of certain skilled workers may persist. A vacant job and an open position do not automatically match. Professional skills, place of residence, health requirements, and technological demands can differ significantly. A company may therefore reduce operations while simultaneously struggling to find personnel for automation, software development, or specialized manufacturing processes. This simultaneity is not a statistical contradiction but rather an expression of an adjustment problem.

Labor market policy should therefore not focus solely on the total number of job vacancies or job seekers. Transitions between occupations and regions are crucial. Further training, career reorientation, appropriate immigration, and improved recognition procedures can help. Equally important is the timely development of skills within companies. If action is only taken after a site closure, valuable experience is often lost. A proactive strategy therefore aims to integrate employees into new productive roles as early as possible, rather than merely mitigating the social impact of structural change after the fact.

Weak investment is the key warning sign

Investment decisions are particularly indicative of future industrial performance. Current production is heavily dependent on facilities built in the past. New investments, on the other hand, reveal where companies see their economic future. If replacement purchases predominate while expansions are neglected, ongoing operations may appear stable for a long time, even though their development potential diminishes.

The weakness in investment extends beyond industry. In Germany's small and medium-sized enterprises (SMEs), investments in new plants and buildings amounted to approximately €218 billion in 2025. In nominal terms, this represented an increase of 1.4 percent, but adjusted for inflation, it was a decline of around 3.7 percent. These figures pertain to the entire SME sector and should not be interpreted solely as industry statistics. However, they illustrate how easily a higher monetary figure can be mistaken for a lower actual investment volume.

It is also noteworthy that this reluctance cannot be attributed solely to a lack of financing options. The equity capital of many medium-sized companies remains solid. Nevertheless, high prices, economic developments, and legal requirements act as obstacles. Thus, a significant part of the problem lies in the expected returns and risks. Cheaper capital alone will not generate an investment boom if companies do not perceive sufficiently reliable demand or an attractive location perspective. Economic policy must therefore improve the profitability of productive future projects and not merely facilitate their financing.

Replacement investments do not automatically mean stagnation

The criticism that companies primarily replace existing facilities makes an important point: an economy cannot grow sustainably if it merely maintains its productive base unchanged. Nevertheless, replacement investments deserve closer examination. A new plant, with the same spatial capacity, can operate more precisely, flexibly, and energy-efficiently. It can thus significantly increase productivity and competitiveness, even though no additional factory building is constructed.

Conversely, not every capacity expansion makes economic sense. If demand for a product declines permanently or a market undergoes technological changes, an additional production line can tie up capital that could be used more productively elsewhere. Therefore, the crucial factors are the technical aspects of an investment, its expected utilization rate, and its contribution to a sustainable market position. A simple comparison between maintenance and growth is insufficient for this purpose.

The situation becomes particularly critical when companies postpone necessary modernizations, limit research, and simultaneously fail to develop new business areas. This threatens a gradual erosion of their core assets, the full extent of which only becomes apparent over time. Sound investment policy should therefore not only promote the highest possible expenditures but also enable additional, economically sustainable innovation. This includes tangible assets as well as software, data, development, and training. However, when evaluating these, it is crucial to use comparable investment terminology and avoid counting expenditures multiple times as supposedly additional activities.

Bureaucracy is making the future more expensive

Bureaucratic burdens extend beyond the immediate cost of completing forms. Complicated or inconsistent procedures also increase uncertainty about when a project can begin and what additional requirements might arise. This uncertainty is particularly relevant for investments with high initial costs. It ties up capital, delays revenue, and can alter the entire location decision.

Therefore, faster administrative action is more than just a matter of organizational convenience. It can directly improve the cost-effectiveness of a project. Clear responsibilities, coordinated reviews, and transparent requirements are essential. A purely digital interface is insufficient if the same information is still requested multiple times and decisions are made sequentially rather than in a meaningfully coordinated manner. Likewise, acceleration should not mean categorically ignoring legitimate safety or environmental requirements.

The crucial question for reform is which procedures can be simplified without compromising their substantive protective function. This includes improved data exchange between authorities and more uniform standards. For businesses, what ultimately matters is the practical outcome, not the number of relief packages passed. The fact that business associations are demanding faster implementation therefore points to a distinct location-related problem: there can be a significant gap between political decisions and their impact on businesses. A reform is only economically relevant if it actually makes investment decisions more reliable, faster, or cheaper.

New competition demands new business models

Germany's industry is under pressure not only because of its costs. It must also respond to changing technologies, new competitors, and increasingly politically influenced trade relations. Competition with China, in particular, now affects core industrial sectors. Geopolitical conflicts, trade barriers, and potential distortions of competition further complicate this adaptation. However, this does not mean that every loss of market share can be explained by unfair competition.

Companies need to assess whether their products still offer sufficient appeal in terms of price, functionality, digital integration, and speed. A historically strong market position does not automatically protect against technological change. At the same time, manufacturing abroad can serve to better reach customers or to diversify international risks. Such decisions should not be categorically interpreted as an exodus from Germany. Rather, the critical question is whether the domestic location gains additional responsibilities within the international network or gradually loses importance.

A robust response combines open markets with the enforcement of fair competition and improved competitiveness. New trade agreements can expand sales opportunities and diversify supply chains, but they do not replace competitive products. Similarly, protective measures can mitigate individual hardships without providing the necessary technological innovation. The goal, therefore, should not be to permanently preserve every existing market structure, but rather to facilitate companies' transition to new, competitive offerings.

AI needs economic implementation

Digitalization and artificial intelligence offer opportunities to improve the productivity of industrial processes. Examples include quality control, maintenance, production planning, and the processing of technical information. However, the economic benefit does not arise from a company simply implementing as many applications as possible. It arises when error rates decrease, equipment availability improves, development times are shortened, or employees can actually work more productively.

This requires suitable data, integration with existing systems, and employees who understand the results and use them responsibly. An isolated demonstration does not constitute a reliable process improvement. It is particularly important for medium-sized businesses to weigh the expected benefits against implementation, operating, and security costs. Not every technically feasible application is economically viable under specific operational conditions.

For Germany, a unique opportunity lies in combining industrial expertise with software and data-driven services. A machine can become more economically valuable through improved process control or additional services. Digitalization thus directly links to the more stable development of value creation compared to goods production. However, it is no substitute for a functioning physical foundation. Data models require real-world processes, customers, and applications. A successful industrial digitalization strategy therefore combines development and practical implementation, rather than fundamentally pitting digital value creation against manufacturing.

Production networks need industrial substance

The loss of individual production stages can have consequences that extend beyond the individual company. Suppliers lose demand, specialized service providers may no longer achieve sufficient capacity utilization, and training opportunities become more limited. Research and manufacturing can also be interdependent: practical problems provide impetus for new processes, while development results are tested in production. Such interrelationships make industrial networks economically valuable.

However, this does not imply an obligation to keep every stage of production permanently within the country. International division of labor can reduce costs, create access to new markets, and increase the competitiveness of the overall system. The relevant question is which capabilities are particularly important for further innovation, security of supply, and adaptability. A strategic assessment should examine such interrelationships specifically, rather than deriving the importance of an industry solely from its size or political visibility.

A gradual loss of complementary capabilities is particularly dangerous. A site may initially lose individual production steps and still achieve high levels of development output. However, if technical partners, testing facilities, and experienced employees are gradually lost, development can become more expensive and slower. These risks do not necessarily materialize, but they must be considered in the assessment. A purely short-term view of company finances can overlook them, as can a macroeconomic debate that focuses solely on current value creation.

Considering taxes and infrastructure together

Corporate taxes influence the return on a successful investment. Infrastructure plays a crucial role in determining whether this return can be generated at all. Tax relief is therefore of little use if a business cannot operate as planned due to a lack of connections, unreliable transport links, or inadequate digital connectivity. Conversely, good infrastructure does not eliminate every tax disadvantage.

A sensible location policy considers both sides together. On the private side, it requires conditions that enable investment and entrepreneurial growth. On the public side, it requires efficient networks, transport connections, education, and administration. Additional budgetary resources only have an effect when they are translated into usable services. If funds are merely made available while planning capacity and implementation are lacking, the economic impact remains limited.

Furthermore, there is a macroeconomic conflict of objectives: Government spending can support demand and investment. However, if skilled workers, construction capacity, or other intermediate goods are scarce at the same time, it can also increase prices. Therefore, financing decisions must be linked to improvements in supply conditions. The decisive criterion is not the size of a program, but the additional productive benefit. Germany needs neither exclusively lower taxes nor exclusively higher government spending, but rather a comprehensible combination of private investment capacity, public services, and effective implementation.

Recovery must become measurable

A sound economic policy requires verifiable milestones. In the short term, it should ensure that existing relief measures are understood, reliable, and effective. Equally important is avoiding unnecessary delays that would block already economically viable projects. In the medium term, improved energy and infrastructure conditions, investment security, and skills development must be interconnected. In the long term, the goal is to develop additional productive capacity, not just to stabilize existing capacity utilization.

Whether a turnaround succeeds cannot be determined by a single month of production. A more meaningful indicator would be a broader recovery over several quarters, renewed increases in real investment, and a stronger development of competitive products and services. Real value creation, productivity, and the development of industrial employment must also be considered together. With regard to job numbers, a distinction must be made between healthy productivity growth and a complete loss of economic activity.

The Ministry of Economic Affairs' presentation to date identifies numerous burdens and countermeasures, but provides neither a weighted explanation of the reasons for the lag compared to neighboring countries nor a concrete timetable for recovery. This does not equate to proof that the measures are ineffective. However, it makes clear that simply listing the relevant problem areas does not, in itself, create a verifiable strategy.

A responsible policy cannot guarantee an exact month of recovery because it does not control international demand or all business decisions. However, it can identify concrete implementation steps and monitor their impact. Its credibility must be measured precisely on this basis. Germany's industrial future does not depend on restoring every production volume from 2015. It depends on whether new processes, new products, and new value creation become economically attractive here. Relief measures can buy time. The necessary renewal process must be driven by the industry itself.

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