Germany’s deindustrialization is an intense process, but it provides answers to questions about where Europe’s largest economy is heading—and the continent along with it
For decades, Germany has carried—and still carries—the title of Europe’s industrial engine: a country that exports machinery and automobiles, and in political terms, it was seen as proof that a social welfare state could be combined with a powerful industrial base. Today, at the end of 2025, the picture is noticeably different. The president of the industrial association BDI speaks of a “free fall” in the German economy and warns of a severe structural crisis, while industrial production has been falling for the fourth consecutive year, and according to estimates, in 2024 it was around 11% below the 2019 level.
At the same time, Berlin has entered a historic reversal in security policy. Following Scholz’s announcement of the “Zeitenwende”* and a special fund of 100 billion euros for the Bundeswehr, the new government under Friedrich Merz promises that Germany will permanently allocate at least two percent of GDP to defense, along with additional extraordinary programs. The Federal Ministry of Defense states that in 2025, the Bundeswehr has more than 86 billion euros at its disposal, which, together with funds from the special fund, represents the largest expansion of the military budget in the country’s postwar history. In his first speech to the Bundestag, Merz announced the goal of making the Bundeswehr the “conventionally strongest army in Europe,” promising that the federal government will secure all necessary financial resources.
- Germany’s “Zeitenwende” policy (literally translated as “turning point of the era” or “epochal shift”), as articulated today by Merz, signifies an attempt at a permanent break with postwar German instincts of strategic restraint and reliance on economic pragmatism, replacing it with an active, “militarily and politically self-aware” role for Germany in Europe and NATO. In Merz’s interpretation, this is no longer merely a reaction to the Russian invasion of Ukraine, as Olaf Scholz formulated it in 2022, but a systematic change in the identity of the German state, involving a strong increase in military spending, long-term modernization of the Bundeswehr, readiness to deliver heavy weaponry, and political openness to scenarios that were until recently taboo, including direct German military presence in crisis zones in Eastern Europe. At the same time, Merz’s Zeitenwende has a clear economic dimension, as it implies acceptance of higher energy costs, weaker industrial competitiveness, and greater fiscal spending as the “necessary price” for security and geopolitical reliability—thereby consciously moving Germany away from the model in which cheap energy, exports, and political neutrality toward great powers formed the foundation of its success.
In public discourse, the question is increasingly raised whether Germany is undergoing a quiet but significant deindustrialization, and whether its true extent is being concealed by the sudden shift toward the military sector and war rhetoric—followed by the political and economic rationale for militarization presented as a response to this crisis. That is why it is essential to view German deindustrialization through concrete figures.
Quiet Deindustrialization—How the Decline Began Before the War
Germany was long an exception among major Western economies because industry retained a very high share of value added and employment. This structure carried risks in itself, but until about a decade ago, the prevailing impression was of a successful export-oriented model focused on industrial innovation. Discussions revolved around “Industry 4.0,” not deindustrialization. Only after a series of shocks—trade tensions, the pandemic, the energy shock, and the war in Ukraine—did it become clear that the industrial decline had begun quietly before the crisis in the East erupted.
Expert analyses show that industrial production in Germany did not collapse overnight but has been in an almost continuous downward trend since 2018. The Institut der deutschen Wirtschaft (IWD Cologne) notes that production in the manufacturing sector in the first half of 2024 was more than five percent lower than the previous year, while the production level at the end of 2019 served as a reference point that was already about eight percent above the new, lower state. The Federation of German Industries (BDI) in its own analysis arrives at an even more dramatic comparison, estimating that production in 2024 was around eleven percent below the 2019 level. In the economic literature dealing with industrial capacities, a similar picture emerges. Authors in the journal Wirtschaftsdienst conclude that industrial production has fallen massively and, with the exception of the pandemic shock, has returned to levels from fifteen years ago—indicating a long-term structural shift rather than a short episode of weakness.
A similar message comes from the analysis of the Bundeszentrale für politische Bildung foundation, which records that German industrial production, after reaching its peak a few years ago, began to “slowly but persistently” decline, with falls accelerating in recent years. Particularly affected are energy-intensive sectors, such as chemicals, metals, plastics processing, glass, and ceramics. After the Russian attack on Ukraine and the energy shock, gas and electricity prices eventually fell from extreme highs, but in 2024 and 2025 they remained noticeably above pre-war levels—pushing these sectors into permanent uncompetitiveness.
The decline is visible not only in production indices but also in employment figures. According to data from the German Federal Statistical Office, reported by Die Zeit and business media, industry lost around 68,000 jobs in 2024. This corresponds to a 1.2 percent reduction in employment in the manufacturing sector in just one year. Experts quoted in these media openly state that these are “signs of deindustrialization,” as the cuts affected almost all major sectors, including the key automotive industry.
In 2025, the trend did not reverse but accelerated in some segments. In the metal and electrical industry, which forms the core of the German industrial model, the Gesamtmetall employers’ association reported that around 76,000 jobs disappeared in the first six months of 2025 alone, with nearly 14,000 jobs lost in June in that sector. In Germany’s largest federal state, North Rhine-Westphalia—a traditional industrial center—the Unternehmer NRW association warns that around 2,100 industrial jobs vanish monthly in the metal and electrical industry. According to this association’s estimate, production in that sector in NRW has fallen 23 percent compared to 2019, while employment has decreased by nine percent. These are cuts that can no longer be described as short-term adjustments to cyclical changes but as a profound structural change in the industrial base.
At the level of business results, the picture is similar. Handelsblatt reported in December 2025, based on data from the balance sheets of around 22,000 industrial companies, that their total turnover fell by more than six percent over three years, and “hundreds of thousands of jobs” disappeared in the same period. At the same time, according to the BDI, industrial production recorded a 4.8 percent decline in 2024, with a further reduction expected in 2025—marking the fourth consecutive fall. While global industrial production is growing, German and European industry are lagging behind—further confirming that this is not just a global problem but a specific weakness in the business model.
Macroeconomic forecasts from renowned institutes complete this picture. The Kiel Institute for the World Economy (IfW Kiel) timely estimates that German GDP in 2024 fell slightly again after the decline recorded in 2023, and that real economic output in 2025 is only marginally above the 2019 level. In the latest analyses, this institute and other economic bodies warn of a phase of prolonged weak growth in which there is no convincing recovery in investments or industrial activity. The gap between industry trends and more dynamic service sectors is becoming ever more pronounced—long-term changing the structure of the German economy.
It is important to note that the industrial decline cannot be reduced solely to temporary shocks like the pandemic or energy crisis. The aforementioned IW Cologne analysis states that capacity utilization in industry is significantly below usual levels, while some companies are clearly permanently reducing or closing production facilities in Germany. Part of production is relocating to countries with more favorable energy and tax structures, part is simply being eliminated, and investments needed for deep modernization are often postponed or moved abroad. In such an environment, talk of deindustrialization is no longer political hyperbole but a description of an empirically measurable process in which cumulative production declines, loss of industrial jobs, and capital outflows overlap and reinforce each other.
In this sense, Germany is not yet an “empty industrial shell,” but it is clearly at a crossroads. The previous model, in which high living standards relied on a strong manufacturing sector, has been seriously questioned for the first time. It is against this backdrop that the political decision to massively increase military spending and attempt to open a new type of industrial growth in the armaments sector must be viewed. The question is whether this is a genuine strategy for reindustrialization or merely an attempt to mask quiet deindustrialization under the rhetoric of security and a “historic turning point.”
The Energy Break—The Price of Cutting Ties with Russian Gas
The German industrial model rested for years on the assumption that cheap Russian gas would flow uninterrupted. Between 2016 and 2020, the share of Russian gas in total imports averaged around 39 percent, with some estimates for 2020 indicating over half of total imports. This dependence was not just an energy issue but the foundation of cost competitiveness for a large part of German industry—especially the chemical and metallurgical sectors, as well as many suppliers in the automotive value chain. After the Russian attack on Ukraine in 2022, this foundation collapsed in a very short period. Gas flows from Russia to Germany fell almost to zero, and the political response in Berlin and Brussels went in the direction of sanctions and accelerated decoupling from Russian fossil fuels. In the background were earlier studies by advisory bodies like the Council of Economic Experts and industrial associations, which as early as 2022 warned that a sudden cutoff of Russian supplies could cause a strong production drop in many sectors.
In the following two years, Germany invested enormous efforts to bridge the resulting energy gap. Within just a few months, floating LNG terminals were built on the northern coast, contracts with new gas suppliers were rapidly signed, overall consumption was reduced, and the growth of renewables was accelerated. The monitoring report from the Federal Ministry of Economics on gas supply shows that by autumn 2024, supply security was again rated stable—with a significantly changed import structure and a larger share of LNG. The German Institute for Economic Research (DIW Berlin) in an additional analysis concludes that even a permanent cutoff of Russian gas imports would be manageable for the EU and Germany, provided diversification of sources and savings continue—meaning the issue is no longer physical availability but price levels. In political reports, this fact is emphasized as proof of successful transition, but economic data show the high price industry paid in the meantime.
This is most clearly seen in energy-intensive sectors. A study by the ZEW institute for NTV records that energy-intensive industry in Germany reduced production by nearly one-fifth (!) from the start of the energy crisis in 2022 to autumn 2025. The previously cited Economic Institute in Cologne in a separate 2023 analysis states that in these sectors—like chemicals and metal and glass production—production fell by nearly twenty percent already in 2022, while overall manufacturing had only a mild decline of about two percentage points. The German Federal Statistical Office further confirms this picture, showing that from February 2022 to July 2023, production in energy-intensive industries fell by 16.7 percent, while total industry decreased by 2.8 percent. Thus, the shock of high energy prices hit precisely the sectors that carried the bulk of German exports and whose production costs are most sensitive to gas and electricity prices. This is a very important fact for further analysis that should be remembered.
For many companies, this shock was not transitory. As early as 2022, industrial associations and regional chambers of commerce commissioned studies warning that a complete cutoff of Russian gas, if prolonged, would lead to permanent shutdowns of capacities in certain sectors—especially chemicals and metals. Exactly such a scenario is partially playing out today. Figures cited in sectoral analyses show that individual factories in Germany have become unprofitable at the new energy cost levels, with production lines shutting down or relocating abroad. ZEW in its study explicitly interprets the production decline in energy-intensive sectors as a reflection of Germany’s loss of international competitiveness compared to regions with lower energy prices—particularly North America (from a geopolitical perspective, this is a very interesting fact).
At the same time, the political narrative in Berlin emphasizes that the energy transition is “successful” because supply security has been ensured without Russian gas and geopolitical risk reduced—often underscoring that Germany “paid dearly” but gained greater energy independence in the long term. For industry, however, this “gain” means coping with permanently higher energy prices, at least in the medium term, and losing part of the market now contested by producers who still have access to cheaper sources. The energy break after 2022 is thus not just an episode in a series of crises but a key part of explaining why deindustrialization accelerated in many sectors precisely during that period.
About the Author
