German slowdown threatens EU steel sector: Gozzi

The German economic downturn may have a strong impact on European steel industry and economic performance, Duferco boss Antonio Gozzi says in an interview with Kallanish.

“Italy has always been a fundamental partner of Germany. Last year, Italian exports to Germany reached €80 billion, representing almost 20% of total Italian exports. There are provinces such as Brescia and Bergamo that are extremely connected with Germany (Brescia achieved €4.5 billion in exports to Germany last year, especially in the metallurgical, mechanical and machinery sectors),” Gozzi writes in a letter shared with Kallanish.

Although many believe the German economic crisis is temporary, there is the feeling that a fundamental change in the country’s economic fortunes is underway. This involves a break with the economic model that has seen the country prosper for 20 years. This was based on three pillars: brave labour market reforms which unleashed all of the country’s industrial potential, low-cost energy from Russia, and strong exports of machinery and cars to China.

Today things are profoundly changing and several weaknesses of the German industry are threatening its future growth. These are an ageing population, a serious lack of workforce, high energy costs, ideological extremism in the fight against climate change, which has led to German nuclear plant closures, and a lack of public investment in infrastructure, Gozzi points out.

The automotive crisis is the symbol of this change. Large German car manufacturers have not managed to maintain their world leadership in internal combustion engine cars and have been late in the development of electric vehicles.

Last year, Chinese manufacturers made around 60% of the more than 10 million fully electric cars sold worldwide. With Chinese manufacturers increasing their market share in both China and Europe, European automakers and suppliers could see their profits shrink by tens of billions of euros by 2030.

The German industrial system is also less diversified than in Italy and is less adaptive, Gozzi continues. It is also losing competitiveness due to high and growing labour costs, high taxes, heavy bureaucracy and a significant delay in the digitalisation of production and services. German industrial giants such as BASF, Linde, and Volkswagen are increasingly investing outside of the country, particularly in the USA and China.

Besides having a high carbon footprint compared to France and Italy, Germany’s most important industrial segments, from chemicals to automobiles to machinery, also work with outdated technology, according to Gozzi.

“There is a conservative current of thought that thinks Germany should continue to invest in China defending the old model based on low energy costs … Some people dream of restoring a good relationship with Russia. Another current of thought believes that a model based on exports and low energy costs is broken and different solutions of growth must be sought. At the same time, no feasible alternatives are being mentioned,” Gozzi explains to Kallanish.

In terms of energy, due its dependence on Russian gas, the country has been profoundly touched by the energy crisis. Although wholesale gas prices have recently stabilised, they are still at around more than double what they were before the crisis. Some analysts believe that with the closure of all nuclear and coal power plants by 2030, Germany will be short of 150 gigawatts of installed electrical power.

“Even if these forecasts seem excessive, the energy gap in the future promises to be gigantic and certainly not covered by renewables alone. The German government and the political forces supporting it are divided on everything and light years away from the discipline and sense of responsibility that has characterised the country’s politics for decades,” Gozzi warns.

On 28 and 29 September, Italian, German and French industrial associations Confindustria, BDI and Medef will meet in Berlin to discuss strengthening collaboration between the three countries and refocusing the European dialogue on industry.

Natalia Capra France