While Germany remained hopeful that industrial manufacturing output declines in the first two quarters would end, recent statistics point toward a continued crisis and a potential recession. According to the Federal Statistical Office (Destatis), price and calendar adjusted new orders saw an 8.7 percent decrease in December 2019.
“The weak development of incoming orders in December 2019 underlines that the industrial crisis is not yet over,” said Juergen Matthes, head of the research unit international economics and economic outlook of the German Economic Institute (IW).
There are some bright spots amidst the gloom. Domestic orders and manufacturers of intermediate goods saw a 1.4 percent increase in orders. According to Matthes, before talk of stabilization can occur, new orders need to rise.
So, what is affecting the country’s export-reliant economy? While there are a multitude of factors that play into manufacturing output and demand, the fact that new orders from other countries increased 2.1 percent is certainly one factor. The rise of automation may also be a contributor.
According to a recent article by the Brookings Institution, there could be a link between output and automation. Looking at data from 2004 to 2015, the more robust use of robotics often resulted in an increase in growth. A downside to that is that robotization makes it easier to re-shore more labor-intensive tasks, thus leading to less local output.
One such example is Adidas, which announced late last year that its Ansbach, Germany, and Atlanta, Ga., factories would be closing. While this may have been further fuel for talk of robots taking over jobs, the closures involve moving the automated production lines to China and Vietnam, which is where the majority of the company’s suppliers are located.
With China quickly rising as the top country for robot installation, low labor costs and high automation make it a tempting place to relocate. According to the International Federation of Robotics (IFR), annual global robotics sales reached $16.5 billion in 2018. The 422,000 units shipped globally was a 6 percent increase from 2017. Asia, especially China, led the pack. Europe was the second largest market, with a 14 percent increase.
Although it’s certainly too early to tell how automation, labor and other factors will affect the German economy, as well as the economies of other struggling European countries, it is time for manufacturers to take note.
Interested in more insight into the world of manufacturing? Check out The Future of Manufacturing Is Bright – Unless You Are Human and What Does ‘Factory of the Future’ Really Mean?