German manufacturers warn of the sector's 'formidable crash'

In the 44 years since Beckhoff Automation opened for business, owner Hans Beckhoff says he hasn’t seen an economic crisis like this one.

“You can usually expect a crisis about once every five to eight years,” says Mr Beckhoff. “This time it’s a formidable crash, a really deep one.”

A German company, Beckhoff Automation makes automated control systems for a wide range of industries, including manufacturing and the energy sector.

It belongs to Germany’s famous Mittelstand, the often highly specialised small and medium-sized enterprises that make up 99% of German companies, provide around 59% of German jobs, and are considered the “hidden champions” of the German economy.

The Mittelstand’s ability to take a long view on business performance rather than scrambling for annual dividends is part of what has made German manufacturing so robust. However, the global economy is shifting rapidly, and pressure is mounting.

“We're still doing well, though the economic situation has really slowed down," says Frederike Beckhoff, corporate development manager at Beckhoff Automation and Hans’ daughter. “This year's results won't be anywhere close to what we achieved over the past three years.”

German firms have been hit by a number of problems in recent years. These include the steep energy price hikes that followed Russia’s invasion of Ukraine in 2022, rising general inflation, and increased competition from China.

Companies also complain about rundown German infrastructure, such as the country’s much criticised rail network, bridges and roads, all three of which state-owned broadcaster Deutsche Wells describes as “aging and crumbling”.

Other businesses highlight what they see as a heavy bureaucratic burden at both national and European levels, inconsistent government decision-making from Berlin, plus higher labour costs and staff shortages.

“The last three years have not been easy in Germany,” says Joachim Ley, chief executive at Ziehl-Abegg, a manufacturer of ventilation, air conditioning, and engineering systems.

“What we really need is reliable [government] decision making instead of 180-degree turns. Even if you don’t like decisions, you can at least plan and adjust if the decision is reliable. This back and forth is putting a lot of burden on companies in Germany.”

Germany’s coalition government fell apart earlier this month, and a general election is now set for 23 February, with a confidence vote before that on 16 December.

U-turns the government has made in recent years include walking back subsidy programmes for heat pumps and electric vehicles. This hit both domestic sales and net-zero targets. Berlin declined to comment.