According to a Deloitte survey on supply chain trends in German companies, more than half of the manufacturing executives surveyed believe that Germany's attractiveness as an industrial location is declining and will continue to do so in the future. In contrast, more than half of the respondents identified North America as the most attractive industrial region, with Eastern Europe coming in second place. This trend would undoubtedly have an impact on industry across the Central European region.
A recently published Deloitte survey on supply chain trends among German companies has revealed several concerning findings. In addition to addressing the latest supply chain disruptions, the survey polled managers about their perception of Germany as an industrial location. According to the results, over half of the respondents believe that Germany’s attractiveness as an industrial location is declining and will continue to do so in the future. Additionally, 45% of the respondents see a strong risk of future deindustrialisation in Germany. That appears to be a concerning signal, as it is widely recognised that the development of the German industry holds significant importance not only for Germany but also for Central Europe.
Regarding potential locations, a majority of the respondents indicated North America (56%) and Eastern Europe (46%) as the most appealing regions. Respondents highlighted several benefits of these regions, such as lower labour costs, good transportation infrastructure, skilled workforce, easy market access, less regulation or bureaucracy, and low energy costs.
Causes of the possible deindustrialisation of Europe
Energy costs have become one of the most significant disruptors for several industries across Europe, leading to numerous struggles to remain operational. Energy costs and inflation have had a significant impact on producer margins, particularly in the automotive industry. It is therefore unsurprising that many producers are now exploring the possibility of shifting their operations from Europe to other locations, which puts not only Germany but also Europe as a whole at risk of losing its manufacturing.
Eastern Europe is also being affected, as evidenced by Volkswagen’s recent postponement of its decision on a battery plant in the Czech Republic. North America is becoming an increasingly attractive manufacturing location, particularly with the introduction of the U.S. Inflation Reduction Act, which puts European producers at a disadvantage. Another notable example is Scottish battery manufacturer AMTE, which is considering relocating its production site to the U.S. due to the absence of competitive advantages in the UK and the unavailability of incentives.
What could be the solution?
To address these challenges, the European Union should offer greater support to its industry. Introducing incentives and postponing initiatives like the EURO 7 implementation to the latest deadline are two potential strategies to encourage industries to remain in Europe and prevent deindustrialisation. There are already some initiatives on country or Union level, however, there is still much work to be done to address the challenges facing Europe’s industrial sector. To address them it will require a coordinated effort across different stakeholders, including governments, businesses, and industry associations, to promote innovation, investment, and competitiveness.
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