Germany faces twin evils in price and cost competitiveness

German Chancellor Friedrich Merz was partially right when he stated that Germany is losing 300 to 500 jobs every day as companies are shuttering their doors. But the full weight that he ignored is, over the falling price and cost competitiveness. More:

Facts

Once the engine of European economic growth, Germany is fast becoming a second-rated manufacturing power. The litmus test is how automobiles and manufacturing general play their respective roles:

1. In the automobile sector, China is outpacing Germany by rolling out affordable Evs about 30% discount to the German price range

2. Low cost manufacturing in consumer durables and other light industrial machinery of China is almost 35-40% discount to German cost of production.

Analysis

a) Cost competitiveness

1. High energy cost after Germany fell-out from the Russian energy routed via pipelines of natural gas and oil

2. High labour cost prevailing within Germany is above 25% to the European average.  Countries such as Bulgaria, Czechia, Hungary, Poland and Romania, enjoy cheap labour and overhead cost than Germany. In fact, today Germany is too expensive a nation in industrial manufacturing

b) Price competitiveness

1. German industry is energy intensive with more power consumption in terms of electricity generation using fossil fuels of coal petroleum

2. Sluggish labour productivity bedevils her as unit of manufacture in a German factory is fairly lower than that of countries in the Eastern Europe

3. Concentration over export driven economic growth tends to ignore realistic pricing.  Whereas domestic consumers get subsidy on price, the export is jacked up to in price.

4. Supply chain snags affect more on the export sector where deadlines that are previously agreed cannot be met resulting in either loss of goodwill and/or cancellation of new orders.

Synthesis

What is needed is structural reforms as regard to both price and cost effectiveness instead of cosmetic touches here and there. The German administrators have so far harped on stop-gap measures. Re-negotiating export price, offering discounted price, cutting overhead expenditure are most avenues resorted to. Sometimes drastic measures are taken to reduce the labour force as well. The end result is Germany is losing terribly in her reputation as an industrial power as well in her geoeconomics clout.

My Direction

Germany must pursue right policies that enable her navigating strategy amid geoeconomics to achieve cost and price competitiveness once again!

 

Cheers!

 

Muthu Ashraff

Strategy Adviser

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Strategy Adviser