Dependency on the automobile has grown

Since the mid-1990s, positive developments in Germany have been very closely linked to the automobile industry. Thanks to its unequal innovative strength, this sector has improved its competitive position and even helped stabilize industrial employment levels. The automobile industry - like no other sector in Germany - provides innovative impetus particularly as a demander of new technologies and also through its own research which extends far beyond its core competencies of mechanical and automotive engineering and spills over into the electronics, chemicals, instruments and process technology fields.

Important prerequisites for the improvement in the automobile sector's position were its intensive division of labor with sites in emerging economies in Southern, Central and Eastern Europe, and its use of cost advantages, coupled with a supply of sufficiently qualified personnel there. Today however, other consequences are looming: Substitution effects are entirely possible given the vast increase in technical knowledge in threshold countries - whose ranks have also included Korea and China for some time now. These substitution effects affect not only more suppliers but also the final manufacturing stage. Cost differences and the euro's high valuation have intensified this trend. Such effects can already be discerned today, depending on the individual corporate group's car model policy.

This is problematic primarily because Germany has largely failed - even during upward phases - to develop significant, competitive alternatives to the automobile sector to such a degree that they are already visible in national balances. In fact, it is more likely that sectors with a strong competitive position, such as chemicals/ pharmaceuticals, machinery and equipment or electrical equipment, will decline. The structural change associated with foreign trade will have no effect on employment as long as other sectors - first and foremost in the services field - can quickly compensate for waning competitive strength in core areas of industry. However, the German economy's growing dependence on export trade has once again been putting a brake on structural change in the direction of knowledge-intensive services for some years now. There are some reasons for concern here, given the diverse demand for new technologies that spill over from the service sector into particularly research-intensive industries (pharmaceutical products/ medical technology, mobility technologies, I&C technology and communications equipment come to mind here). This interaction was also a source for some of Germany's export strength: Technologies that had been jump-started by strong domestic demand and tested in a high quality competition developed a positive impact on export trade. The problem over the last decade has not been the structural composition of the German economy but rather weak and one-sided momentum.

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