Flying sparks: German industry is undergoing structural change (Photo: pixabay.com, jannonivergall)

According to an analysis by the ifo Institute (https://www.ifo.de), the manufacturing industry in Germany is currently undergoing fundamental structural change. According to the experts, industrial companies are increasingly focusing on hybrid products that combine goods with product-related services.

More manufacturing abroad

At the same time, many companies are relocating parts of their physical manufacturing operations abroad and focusing on product development and distribution at home, according to the economists. As a result, figures on traditional industrial production do not fully reflect economic performance in the manufacturing sector.

‘While the production index fell by 13 percent between 2018 and 2024, the more comprehensive value added fell by only three percent over the same period,’ emphasizes Timo Wollmershäuser, Head of Forecasting at ifo. This strategic shift is leading to the adjustment of production capacities and rising revenues from non-industrial activities.

Changing Business Models

‘It is not enough to look purely at the production of goods in Germany. Industry is adapting its business models and increasingly focusing its domestic activity on research and services,’ Wollmershäuser explains the current transformation. This development is particularly pronounced in the automotive and mechanical engineering industries.

In these two currently underperforming sectors of the economy, research and development and product-related services are gaining in importance, while traditional production capacities are increasingly being outsourced. Wollmershäuser advises that this structural change should be taken into account when assessing the situation of German industry.