Warning from Ifo to Germany: Growth Potential and Industrial Employment are Declining

The Ifo Institute pointed out that the contraction in industrial employment in Germany is a structural shrinkage rather than a temporary slowdown. While major job losses in the automotive, metal products, and mechanical engineering sectors account for 60% of the total decline, the increase in the service sector attempts to offset this loss.

Losses Concentrated in Three Industrial Sectors

Automotive manufacturers and suppliers stood out in the industrial employment contraction, with the number of workers in the sector dropping by 123,500 people, or 13 percent. Being late in the electric vehicle transition and cost pressures triggered this decline. The contraction was not limited to the automotive industry alone, leading to employment losses of 115,600 in metal products manufacturing and 64,500 in mechanical engineering. These three sectors accounted for approximately 60 percent of the total job losses in German industry.

The Service Sector's Balancing Effort and Structural Transformation

While layoffs continued in industry, more than 2.2 million new jobs were created in the service sector during the 2019-2025 period. The vast majority of this increase occurred in healthcare, social services, and public administration. While industrial employment decreased by 7.1 percent, growth in the service sector attempted to keep total employment in balance. Ifo Managing Director Joachim Ragnitz emphasized that the economy is undergoing a structural transformation process, but new employment is not being generated in sectors strong in productivity and innovation. Experts state that the replacement of high-value-added industrial jobs with lower-productivity areas in services weakens the country's export power in the medium term and pulls down its growth potential.