The crisis engulfing Germany’s economy deepened yesterday as carmaker Volkswagen said it could close down factories in the country for the first time in its 87-year history.
VW said major cost-cutting measures were needed – as separate figures revealed the eurozone’s wider manufacturing sector was ‘going downhill and fast’.
Europe’s woes are in stark contrast with Britain where manufacturers are powering ahead at the fastest pace for more than two years.
Germany, the continent’s largest economy and once an industrial powerhouse, is undergoing a prolonged manufacturing downturn that has seen it dubbed ‘the sick man of Europe’.
Production: VW workers on the assembly line at its German base
That is partly attributed to China muscling on to its turf and going head to head with its car making sector. VW is its largest industrial employer and Europe’s top car maker by revenue.
Announcing its cost-cutting drive yesterday, VW chief executive Oliver Blume said: ‘The European automotive industry is in a very demanding and serious situation. The economic environment became even tougher and new competitors are entering the European market.
‘In addition, Germany in particular as a manufacturing location is falling further behind in terms of competitiveness.’
VW said it would try to tear up its pact with workers to keep jobs secure until 2029 – setting up a clash with a powerful trade union that vowed ‘fierce resistance’.
Carsten Brzeski, global head of macro at ING Research, said the carmaker’s decision highlighted the consequences of years of economic stagnation.
‘If such an industrial heavyweight has to close factories, it may be the long overdue wake-up call that [Germany’s] economic policy measures need to be stepped up considerably,’ he said.
The scale of the downturn was underlined by the closely watched purchasing managers’ index (PMI) report into manufacturing.
On a scale where 50 seperates growth from contraction, the eurozone clocked up a score of just 45.8, showing that the sector is shrinking.
Germany and France, the single currency bloc’s two largest economies, were the biggest drags as they suffered accelerating downturns. Germany’s reading of 42.4 was the weakest for five months while France hit a seven-month low of 43.9.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which compiled the eurozone figures, said: ‘Things are going downhill, and fast. The manufacturing sector has been stuck in a rut.
‘With such a broad downturn across the board, there is little sign that things will get better any time soon.’
He said the downturn for German industry was ‘dragging on way longer than anyone expected’ with China ‘the main culprit’.
In Germany, Volkswagen’s woes will intensify pressure on Chancellor Olaf Scholz.
Scholz suffered a separate blow yesterday when regional election results saw the hard-Right AfD party come first.
But while the gloom over the eurozone deepened, the UK’s manufacturing PMI rose to 52.5 in August, up from 52.1 in July.
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