German industry calls for reduction in red tape to cope with transition risk

German industry has called for a reduction in red tape, regulation and bureaucracy to help it cope with the painful and costly green transition at a time of highly challenging economic conditions.

During its recent ‘Day of Industry’ event, the German confederation of industry (BDI) said it expects stagnating economic performance in the country this year.

“We are in a recession… the BDI expects to see a sobering plus or minus zero percent [growth rate] for gross domestic product in 2023 compared to the previous year,” said BDI president Siegfried Russwurm at event in Berlin.

The BDI forecasts GDP growth of 2.7% for the global economy, which would be a full percentage point less than the average of the past 20 years. “Still, a plus 2.7 globally and zero for us clearly says: Germany is falling behind,” Russwurm said.

He sees the drag on growth primarily in investment behaviour, which has deteriorated massively, as well as Germany’s labour shortage, a major problem in many industrial sectors.

“We expect to see an increase in investments in equipment, patents and licenses, for example, but due to the sharp decline in construction investments, which account for slightly more than half of the gross fixed asset investments, we’ll end up with a negative total,” explained Russwurm.

The BDI president said things are expected to remain difficult due to a variety of challenges such as an aging population, the fight against inflation, global political tensions with related higher costs for resilience, and high upfront investments in climate-neutrality and the digital transformation.

Those who believe the energy transition could become the nucleus of a new economic miracle underestimate that investments will largely only replace existing assets and, for the most part, at much higher cost, stressed the BDI.

“This certainly won’t bring us additional economic growth for the time being. An economic upswing doesn’t come on its own. So, there’s no all-clear for Germany as an industrial location. On the contrary: Germany faces a mountain of major challenges. Policymakers must systematically tackle structural reforms,” warned the BDI president.

“A feeling of impatience and uncertainty is spreading among many entrepreneurs. More and more German companies, including small and medium-sized enterprises, are considering shifting parts of their value creation out of Germany because domestic costs, speed and bureaucracy are simply not acceptable for them in comparison,” Russwurm warned.

“We need better tax conditions for investments in Germany, and we need them now, not sometime in the future. When will the promised sense of proportion in our regulations finally become a reality? We also need to speed up planning and approval procedures to stimulate investments,” he added.

Russwurm sees huge challenges ahead in restructuring the country’s energy supply and demanded government action to help tackle supply chain risk.

“The BDI expects the government to quickly come up with a concept that can be implemented and that ensures a secure, long-term supply of electricity at internationally competitive costs. The many state-induced burdens such as taxes, surcharges and network fees must be reduced to make electricity more attractive than fossil fuels,” demanded Russwurm.

Equally urgent is the need to build the necessary infrastructure and expand the supply of electricity. The delta between ambition and implementation is growing by the day. This is particularly evident in the ‘sluggish’ expansion of wind power in Germany, said Russwurm.

“Rather than installing four or five wind turbines per day, as the chancellor believes is necessary now, just one wind turbine was erected per day in the first half of this year,” he pointed out.

Russwurm also said that the increasingly tense relationship with China needs to be “de-risked”.

“A decoupling from China would be unrealistic and damaging. What we need is decisive de-risking. Companies are working intensively to strategically diversify their sales and procurement markets and build new partnerships,” said the BDI chief.

He said China is both a systemic rival and an economic and technological competitor. Inevitably, however, the country is also an indispensable partner in the fight against climate change. “We need to maintain a dialogue with China on climate protection as well as on trade and investment relations,” stated Russwurm.

The BDI chief’s strong words were heard by the right audience at the Berlin event. More than 1,000 representatives from business, politics, society and science exchanged views on industrial policy challenges facing Germany.