MULFINGEN, Germany — Germany is at a crossroads, needing to reinvent its economic model as the previous framework that relied on inexpensive natural gas imports from Russia and robust exports to China is now obsolete. The country, known for its manufacturing excellence, has been grappling with stagnation and uncertainty concerning its economic prospects. The upcoming national election scheduled for February 23, which has been called seven months earlier than planned, will test the new government tasked with crafting a growth strategy. Real economic growth has eluded Germany for the last five years.
A variety of factors have steered Germany from being an industrial leader to a pandemic-induced laggard. Issues such as excessive bureaucracy, a lack of skilled labor, slow technological advancements, and unclear directives from the current coalition government have all contributed to this decline. The challenges have been further exacerbated by increasing competition from China and soaring energy prices stemming from the ongoing conflict in Ukraine.
Klaus Geissdoerfer, CEO of EBM-Papst, a leader in industrial fan manufacturing, voiced the need for a more business-friendly political environment in Germany. “We have bright talent in Germany. We have good companies, but at the moment we don’t have the awareness on the political level,” he stated, highlighting the urgent need for reform. EBM-Papst, which generates an annual revenue of 2.5 billion euros ($2.6 billion) and operates production facilities around the globe, has reported significant challenges in its home market, with a revenue decline of 4.1% last year.
The company’s heating technology sector encountered a staggering drop of 18.7% in sales, largely due to a poorly implemented initiative encouraging property owners to upgrade from gas furnaces to more eco-friendly electric heat pumps. Geissdoerfer pointed out that the requirements of the Building Energy Act proposed by Chancellor Olaf Scholz’s coalition were convoluted, leading to indecisiveness among consumers. Many postponed upgrades or hastily purchased new gas appliances, which diminished the market for EBM-Papst’s advanced heat pump fans.
Geissdoerfer also expressed frustration with Germany’s bureaucracy, noting that recent laws focused on combating climate change require companies to allocate staff for compliance reporting, which detracts from their operational efficiency. “I really hope with the new government we can get this solved, because at the moment it’s too much,” he urged.
EBM-Papst’s shift towards green and digital technologies is seen as a critical step for the German economy. The firm, based in Mulfingen, is now focusing on developing cooling systems for energy-intensive AI data centers and incorporating AI capabilities to help optimize energy consumption. Meanwhile, the company is expanding its investments in Asia and the U.S., with new facilities supporting American customers in states like Connecticut and Tennessee. These strategic moves precede the pandemic and provide EBM-Papst with a buffer against potential import tariffs.
The situation is further complicated by international relations, particularly with Russia and China. The Kremlin’s reduction of natural gas supplies in response to Germany’s support for Ukraine has resulted in drastically increased electricity costs, which, according to Mecanindus-Vogelsang Group, can be up to double the prices seen in their U.S. facilities. CEO Ulrich Flatken emphasized the need for competitive energy costs to avert ongoing deindustrialization.
Germany’s economic contraction over the past two years contrasts sharply with growth observed in the U.S. and China, raising concerns about the failure to adapt to rising competition. While Germany’s economy was only marginally larger at the end of 2024 than in 2019, the U.S. and China saw substantial growth during the same timeframe.
Marcel Fratzscher, president of the German Institute for Economic Research, believes that complacency during the robust export years to China hindered timely responses to technological changes, such as the shift toward electric vehicles. He notes that a sense of “mental depression” pervades the business landscape, resulting in pervasive pessimism and diminishing investments. Many argue that loosening constitutional debt limits is essential for the next government to ramp up public spending on infrastructure and education to stimulate growth.
Fratzscher cautions that historical consensus-driven political structures may impede necessary reforms. “We need to change the mindset to understand we need to be much faster on economic transformations,” he explains, highlighting the urgency for political leaders to embrace agility in economic strategy moving forward.
