Germany’s competitive position is deteriorating sharply as international competition intensifies; the German industrial sector’s score on the relevant competitiveness index has dropped to just 3—down from 11 in 2025 and 21 in 2024—on a scale ranging from 100 to -100.
Bureaucracy tops the list of business concerns, followed by rising energy costs, according to a survey by the German Management Research Association.
Shifts in global trade—driven primarily by intensifying Chinese competitiveness—are unfolding “so rapidly and dramatically” that some European policymakers failed to anticipate such severe impacts as early as 2026 or 2027.
A significant portion of the German economy is facing profound changes. From the automotive and chemical industries to the manufacturing sector, companies are undertaking extensive restructuring to reduce excess production capacity.
This process entails plant closures and job cuts. At the same time, workers at Volkswagen, Mercedes-Benz, BMW, Audi, and Porsche—as well as at major automotive suppliers—have staged protests due to the crisis.
Sectors under pressure
The machinery and plant engineering sector, along with chemical and pharmaceutical companies, had been among the top performers in 2024. However, recent data indicate that they are now facing significant pressures. Input costs constitute one of the key issues.
For the pharmaceutical sector, additional hurdles include research productivity, the quality of products under development, and the regulatory framework.
Meanwhile, business leaders point out that the government is slow to make decisions, and no concrete initiatives have been taken to address energy supply and costs. Strengthening trade relations further is also among the businesses’ priorities.
The internationalization of production is already a reality for a significant portion of German companies: approximately 56% have relocated production activities abroad—either entirely or in part—while 45% have moved research and development activities to international centers. At the same time, approximately eight out of ten businesses consider speed a critical factor in competitiveness, as competitors from other countries bring their products to market faster and adapt more consistently to changing conditions.
Cost-cutting efforts and AI
Although 90% of respondents consider cost reduction and optimization to be very or extremely important, businesses are simultaneously moving towards diversifying their suppliers.
Following the supply chain disruptions caused by the COVID-19 pandemic, companies are increasingly turning to multiple sourcing options rather than relying solely on the most cost-effective supplier. Supplier reliability can lead to increased orders and more sustainable business growth.
Meanwhile, nearly half of all sectors are utilizing artificial intelligence applications—for purposes ranging from value chain simulation to planning and control processes.
There is widespread recognition that artificial intelligence will boost efficiency and labor productivity, while also being expected to render certain jobs redundant. So far, AI has not yet led to the replacement of specific jobs.
The country’s leading economic research institutes have more than doubled their joint growth forecast for the current year, while the business climate index has strengthened to its highest level since late 2025.
