German businesses decrease workforce for the second time
In recent months, Germany's industrial sector has been grappling with significant job losses, particularly in the automotive industry. Over the past year, around 51,500 positions have been cut, accounting for nearly half of the lost industrial jobs in the country. This is part of a larger trend, with over 112,000 jobs lost since 2019. The industry is facing strong downturns due to profit declines and shrinking markets.
The automotive sector isn't the only one affected. Forty-four percent of companies across the industrial sector are planning further job cuts in 2025, while only 14% intend to hire more staff. Service providers are also seeing job reductions, although not to the same extent.
However, it's not all doom and gloom. The defense sector is expanding employment, with Rheinmetall planning to add 5,000 jobs due to increased defense orders. Elsewhere, the tourism sector is experiencing a hiring boom.
The reasons for these job cuts are manifold. Significant profit losses, overcapacities, and weakening overseas markets, particularly exports to the US and China, are the main culprits. In the second quarter, German exports to the US fell by 10%, and overall, the exports of German industrial companies shrank by 0.6%. The value of exports to China was 14% lower in the same period compared to the previous year.
The job market in Germany has been affected as well. The number of unemployed people in the country has exceeded three million for the first time since February 2015. EY consultants predict that job cuts in the German industry will continue, and in August, there were more dismissals than new hires in all key sectors.
The focus of cost-cutting measures is on management, administrative, and R&D functions. Meanwhile, the workforce in the construction industry is being kept largely constant. The retail sector is also seeing staff reductions, but less so than before.
The Ifo Employment Barometer in the service sector has slipped into the negative range in August, highlighting the challenges faced by this sector. Ifo President Clemens Fuest states that Germany is not innovative-friendly enough and targeted promotion of new ideas, technologies, and business models is urgently needed to overcome the growth crisis.
One potential solution could be adopting Denmark's approach of combining low dismissal protection with good unemployment benefits, known as 'Flexicurity,' for highly qualified employees in Germany. This model allows companies to hire and fire more easily, fostering innovation and growth.
Despite these challenges, there are signs of hope. The defense sector is expanding, and the tourism sector is booming. As Germany navigates these tough times, it's clear that innovative solutions and a focus on growth will be key to overcoming the current crisis.
