The Comeback of the German Dinosaurs Industry Returns as Economic Engine

The comeback of German manufacturing contradicts the notion that the future belongs to the service industry. Manufacturing firms are currently the engines of growth in the German economy, even for the service sector.


These days Michael Walter, 43, often finds himself committing what would normally be considered sacrilege in the business world: He's turning customers away before they can even place an order with him.

"I simply have to tell them that I won't be able to help them until later, says Walter, the CEO of Gutehoffnungshütte Radsatz in the western German city of Oberhausen, a company specializing in the production of wheels and axles for rail vehicles.

Orders have been piling up like the wheels in the company's more than 90-year-old factory building in Oberhausen's Sterkrade district, where employees work in three shifts to produce wheels and axles for customers around the world.

The company's sales have risen by 60 percent within the last two years. Even though Walter has increased the work force by more than 25 percent and created 50 new jobs, the order backlog has barely declined. "And this won't change in the next year and a half," he says.

Gutehoffnungshütte Radsatz isn't the only German company where business is booming. The story is much the same at Bauer AG, a manufacturer of specialty construction machinery located in Schrobenhausen, a town near Munich, where CEO Thomas Bauer is confident about the future and pleased with the past. Last year Bauer added 200 new employees throughout Germany, and this year he plans to hire another 100. "The machine building business is going extremely well," he says.

"The Best Period We Have Ever Experienced"

The recovery has even buoyed industries in eastern Germany, a region chronically plagued by job loss. "This is the best period we have ever experienced," says Klaas Hübner, the owner of a mid-sized group of companies in the machine building business in Neugattersleben, a town in the former East German state of Saxony-Anhalt. "We will increase our work force by 10 percent this year," says Hübner, who is also a member of the German parliament, the Bundestag, representing the center-left Social Democratic Party (SPD).

From Neugattersleben to Schrobenhausen to Oberhausen -- throughout Germany, for that matter -- manufacturing companies are reporting record orders, production growth and hiring levels. For decades, the gradual shift from a manufacturing to a service-based economy seemed inevitable. It was seen as virtually a law of nature that manufacturing's share of the economy must shrink while the service economy grows. It was said that Germany no longer had a future as a manufacturing country, and that jobs represented its last export product.

Graphic: At full steam

Graphic: At full steam

But reality has refuted the theories, while Germany's economy continues to grow. Virtually all production indicators are pointing upward. The manufacturing sector is expected to grow by four percent this year, a rate more than twice as fast the economy as a whole.

For years, gross value added has grown faster in manufacturing than in the service sector. More importantly, the Association of German Chambers of Industry and Commerce (DIHK) estimates that industrial companies will be responsible for 100,000 of the anticipated 300,000 new jobs that will be created in Germany this year.

"Right now we are experiencing a renaissance in German industry," says Volker Treier, the chief economist at the DIHK.

The dynamics are impressive. Even though industry, not including the construction sector, provides only about 14 percent of all existing jobs, it is responsible for one-third of all new jobs -- two-thirds if one includes the jobs created by service companies affiliated with industry. These businesses, like software companies and billing services, are also expected to add 100,000 new jobs this year.


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