According to a study conducted by the Ifo Institute on behalf of the Bertelsmann Foundation, the German economy possesses the ability to navigate the challenges of industrial transformation, but this requires significant reforms to its innovation policy.
Oliver Falck, head of the Ifo Center for Innovation Economics and Digital Transformation, noted that a large portion of German industry is already moving toward future markets. According to Falck, the critical need now is for a policy framework that supports this shift rather than hindering it.
The study utilized a Growth-Share-Matrix for German industry. The findings show that approximately 76 percent of the manufacturing sector’s gross value output comes from industries where the proportion of production value generated by fast-growing products surpasses that of the shrinking ones. This indicates that, structurally, German industry has the potential to handle multidimensional transformation.
Experts point to high-technology sectors, such as pharmaceuticals and IT, as being particularly well-positioned. These industries show strong shares of growth products and are recording significant increases in both investments and exports. Furthermore, Christian Pfaffl, an Ifo researcher, stated that medium-technology sectors, including mechanical engineering and parts of the chemical industry, have successfully updated their product portfolios to align with future market demands.
In contrast, the automotive industry faces considerable adjustment pressure. This is because the contribution from traditionally powered combustion engines, which are seeing a decline in production value, currently outweighs the contributions from growth drivers like electric vehicles. Nevertheless, the overwhelming majority of sectors that currently generate below-average contributions to the gross value output are found to have a higher share of strongly growing products compared to declining ones, citing examples like glassworks or metal production.
Based on expert view, the focus must be on actively promoting structural change rather than delaying it through policies designed to preserve existing structures. Falck emphasizes the necessity of significantly improving the framework for disruptive innovation and growth-focused startups. Key policy recommendations include establishing an innovation-friendly capital market, adjusting tax regulations so that risky investments are not penalized, and developing a more flexible labor market that facilitates necessary workforce adjustments.
