Service sector defies the global economic slowdown – National Industrial Strategy misses the mark

The current slump in order intake, above all from abroad, is not due to the lack of competitivity of German industrial companies. Rather, it is the consequence of German industry being strongly reliant on exports – at a time when the international economic cycle is slowing. In this context, the debate about a “National Industrial Strategy 2030” launched by the German Federal Ministry for Economic Affairs and Energy is all the more important.

The “National Industrial Strategy 2030” contains strategic guidelines for overall industrial policy. However, the long-term trend shows that industrial companies in Germany have hitherto succeeded very well in maintaining their international competitive edge without the active influence of government. And they have a comparatively major importance for the German economy as a whole. Sales patterns over the past 15 years also show, however, that some service-sector companies have posted more dynamic growth than manufacturing and that they definitely have greater future potential.

The weakening global economy has to date not marred the good sentiment in the German service sector, unlike that among industrial companies. The service-sector companies tend to focus strongly on the domestic market and are far less exposed to economic volatility than their industrial counterparts, which have a greater export emphasis. In first-quarter 2019 service-sector companies in Germany and Europe were reporting capacity utilisation ratios that were far better than those in industry. Moreover, capacity utilisation levels remained stable as compared to 1 January 2018, whereas they fell among industrial companies.

The strategy of concentrating on promoting large industrial companies could therefore prove to be an error. It would, above all, be to the disadvantage of the small and medium-sized players, Germany’s Mittelstand. Instead, sector-independent support for R&D would seem to be a more suitable policy option.

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