The proportion of gross value added delivered by manufacturing has been fairly steady for the last 20 years, amounting to 22.9 % in 2017. In contrast, industry only accounted for 16.3 % of gross value added in the overall EU in 2016; in leading industrial nations like France and Britain, it was actually much lower (cf. Diagram).

Regional clusters, strong SMEs

The comparatively great significance of industry in Germany is a reflection of the traditional specialisation in the German economy due to specific advantages. These include the regional clusters of efficient small, medium-sized and large firms and research establishments, and the availability of highly qualified workers and engineers.

Reference: Federal Statistical Office (only including companies employing 20-plus people, apart from construction industry proper)

A strong exporter

Germany is one of the most successful exporters in the world. In 2017, the country exported goods worth €1,279 billion (+6.2% more than in 2016). The balance of trade attained a record surplus (€245 billion). This strong export performance is mainly due to the efficiency of the German industrial sector. The manufacturing sector sold almost 50 per cent of its output to customers outside Germany, but the significance of foreign trade is even greater in many other sectors: In 2017, the export ratio was just under 67 per cent in the pharmaceuticals industry, more than 62 per cent in the German automotive industry, and around 56 per cent in mechanical engineering.

Source: WTO

Industry-related services increasingly prominent

The structure of the German economy has changed radically over recent decades. Whilst in 1970 half the workforce worked in manufacturing, the figure today is only 19%. Also, the share of gross value added accounted for by industry was 36.5% back in 1970 and then declined for many years; however, this development has come to a halt since the mid-1990s. In 2017, the share of gross value added accounted for by industry was 22.9% in Germany – much higher than in comparable industrial nations.

These shifts are not a reflection of a decline in the importance of industry, but are mainly the result of fundamental changes in the value creation process, in which company-related and product-related services are playing an increasing role. This development means that the share of value creation does not fully reflect the actual economic significance of industry. With its strong demand for services, industry makes an important contribution towards the development of this sector. Service providers are increasingly becoming upstream suppliers for industry, and product-related services are growing in significance in the marketing of industrial products and facilities.

Germany's economic strength is largely based on the efficiency of German industry, and particularly on its innovative strength. In order to foster this, the German government has brought together all its research, technology and innovation policy measures in the "High-tech Strategy". All of the federal ministries work together on this strategy, and have coordinated their respective measures. The strategy is developed together with research, business and groups in society, and is adapted to the challenges of the future.

In this process, the potential of the key enabling technologies is to be used: due to their economic leverage, they are of especial importance. They form the basis for a variety of applications in different sectors of industry and promote the development of new, marketable products. In addition to the key enabling technologies, the "lead markets" with great potential for the future merit particular attention.

Within the framework of the Federal Government’s Hight-tech Strategy, the fields of health, mobility, climate/energy, security and communication are particularly addressed as important markets with potential for the future in cooperation with business and science. The Economic Affairs Ministry has special programmes for aerospace, the maritime industry, and the fields of mobility and information and communication technology. Also, innovative SMEs in all sectors can access government funding via the Ministry’s technology-neutral programmes.

An overview of the key lead markets with potential for the future can be found here (in German).

Securing raw materials and using them efficiently

Germany is one of the world’s largest consumers of raw materials, and is highly dependent on imports of them. Security of supply, protection of natural resources, a sparing and efficient use of raw materials, and their re-use, are therefore of great importance for the economy –and especially for the goods-producing and manufacturing sectors. The Federal Government and the private sector fully agree that companies are themselves responsible for ensuring that they have the resources they need. The German Government has been contributing to this effort by adopting a Raw Materials Strategy, under which it has taken a large number of supportive measures.

Find out more about raw materials policy here.

With fossil resources becoming increasingly scarce, bio-economy is gaining importance in the context of industrial manufacturing. Biotechnology (in German) is one of the key drivers of bio-based innovation.

Focussing on renewable energy across sectors

Fossil fuels are to be replaced with renewable energies, not only when generating power but also in industry, transport and heating. Click here to find out more on integrated energy, its contribution to the energy transition, and measures introduced by the Federal Ministry for Economic Affairs and Cimate Action.

The cost of energy

In the case of many energy-intensive industries, energy and the use of electricity are the leading cost factors. Since Germany’s electricity prices are high in an international comparison, some exemptions from the taxes, levies and surcharges contained in those prices are needed if energy-intensive industries are to remain competitive and the industrial jobs to be safeguarded. Companies in the energy-intensive sectors are therefore granted reductions or compensation for burdens imposed on them by levies (e.g. in the context of the Renewable Energy Sources Act or rules on combined heat and power generation), electricity taxes and grid fees.

In order to reduce carbon emissions in electricity generation, space heating, transport and industrial companies, Germany is aiming to boost renewable energy, energy efficiency and climate-friendly production processes. The German government has set itself the ambitious goal of cutting harmful carbon emissions by 40 % by 2020 and by as much as 80-95 % by 2050. In the Paris Climate Agreement, the international community has adopted a global climate regime for the period after 2020 which provides a comprehensive framework for action.

Climate check

Scientists say that global warming will impact on Germany in many different ways. For example, extreme weather events represent a potential risk for industry in view of increasingly interconnected supply and value chains. A “climate check” has therefore been developed on behalf of the Federal Ministry for Economic Affairs and Climate Action. It is intended to help companies to pinpoint climate-related risks and to develop ways to handle these risks.

Helping to mitigate climate change

In the EU emissions trading system, which covers all energy-intensive industries, the total amount of greenhouse gas emissions permitted by the system are cut each year, so that these sectors make an effective contribution towards climate change mitigation. Also, the other environmental protection and energy efficiency standards in Germany are much higher than in many other countries. Savings of more than a quarter were made across the industrial sector between 1990 and 2013.

Internationally, the contracting parties to the United Nations Framework Convention on Climate Change agreed in Cancún (Mexico) to strengthen cooperation in the field of climate-related technologies and decided to set up the "technology mechanism". This is composed of a policy unit — the Technology Executive Committee (TEC), and an implementing unit — the Climate Technology Centre and Network (CTCN). The TEC has been making recommendations for decisions in the Climate Framework Convention since 2011. The CTCN has been in operation since 2013 and aims to improve cooperation on climate-related technologies.

As policy on climate change mitigation develops, we also need to keep an eye on the competitiveness of our energy-intensive industries. It is also necessary to prevent very strict climate rules from causing carbon leakage – that is to say, the relocation of companies and their carbon emissions from the EU to third countries in order to avoid costs. This is also true of investment leakage – i.e. the relocation of investment due to less stringent climate rules in other countries.

CCS technology

Carbon Capture and Storage (CCS) means the separation of CO2 in power stations or industrial plant, and the subsequent storage in deep geological strata. According to the International Energy Agency (IEA), CCS technology could cover about 14 % of the global carbon emission reductions needed by 2050. The technology is currently being tested in Germany.

Industrie 4.0 combines production methods with state-of-the-art information and communication technology. This smart approach makes it possible to deliver tailored products to meet individual customer requirements – at low cost and in high quality. Highly flexible production methods and logistics will make it possible to customise products. Customers and business partners will be directly involved in operational and production processes, and there will be production methods and products that are closely intertwined with state-of-the-art, knowledge-intensive services (hybrid production, hybrid products).

Plattform Industrie 4.0: working together to shape the digitalisation of industry

The Economic Affairs Ministry is helping to shape digital structural change – through its Industrie 4.0 platform. Under the leadership of the BMWK the previous platform of business associations has been broadened, and the alliance now includes government representatives, representatives of business associations (VDMA, ZVEI, BITKOM, BDI, VDA, BDEW), trade unions (IG Metall) and science (Fraunhofer Society).

You can find detailed information about Plattform Industrie 4.0 here.

It is necessary to reshape Germany's industrial policy so that industry will remain a strong core of the German economy. This is because megatrends like digitalisation are driving structural change. This reshaping cannot work unless all the relevant partners are integrated in the dialogue. For this reason, the Economic Affairs Ministry and the social partners and industrial associations have set up the “Future of Industry” Alliance.

The Alliance brings together key industrial policy expertise and improves the coordination of industrial policy interests. It aims to link up key areas of research and funding policy and of industrial and competition policy in Germany and Europe.

Find out more about the work of the "Future of Industry" Alliance here.