(Finance) – Since the start of the energy crisis, in the autumn months of 2021, manufacturing production in the euro area has recorded a significant decline, falling back in late 2024 to below the levels recorded before the pandemic. For theGerman industrywhich affects over a third of the area’s manufacturing, and almost half of the investment goods sector, the the decline was decidedly more pronounced, with negative repercussions also for the other countries. We can read this in an in-depth analysis in the latest Economic Bulletin of the Bank of Italy, according to which three main causes contribute to the relatively more unfavorable trend in Germany.
First, the increase in energy costs in Europe it hit German production harder than the rest of the area. This largely reflects the technological characteristics of the country’s chemical sector, which make this sector particularly dependent on natural gas. The weakness of the activity of the chemical industry, due to its strong sectoral interconnections, has spread to other highly energy-intensive industries, resulting in a sharper decline in the production of this sector in Germany compared to the rest of the area as a whole.
Secondly, the weakness of global demand for goods, the progressive fragmentation of trade and the greater competition from Chinese manufacturers they penalized German manufacturing companies more markedly than those of the main countries in the area, due to Germany’s greater commercial openness. Compared with the decade before the pandemic, the contribution of German exports to GDP growth decreased, falling below that of the other major countries.
Finally, the area’s industry has been affected by the most recent weakness in the automotive sectorwhich has suffered the repercussions of both a widespread decline in demand – also connected to regulatory uncertainties in the transition phase towards the production of electric vehicles – and the growing competition from Chinese car manufacturers. This sector represents 16 percent of manufacturing production in Germany, almost double that of the euro area as a whole (just under 9 percent).
“An econometric analysis of the interconnection between European manufacturing sectors shows that shocks originating in German industry they are transmitted to a significant extent to the rest of the area: in Italy, in particular, they would explain almost a third of the non-systematic fluctuations in manufacturing production over a six-month horizon – writes the Bank of Italy – This impact would have reduced in the period following the pandemic, although still remaining at high values. On the contrary, the effects of shocks originating in the industrial sectors of other European countries are more attenuated in Germany”.