Industry in transition: Europe at a crossroads – studies call for radical change

What is the state of the industrial location Europe and Germany? What transformations will and must industry and politics tackle? Two recent studies by BDI and the EU Commission provide answers to these questions. If you haven't yet had time to scan the approximately 600 pages for the consequences for the mechanical and plant engineering industry, Industry Insight has summarised the most important findings for you.

Written by Armin Scheuermann

Young designers present their development at the joint location Innovation Germany — Competitiveness requires innovation – especially in technologies that contribute to a sustainable energy transition – according to recent studies by the EU Commission and the BDI.

The year is 2030: more and more industrial areas in Germany and Europe are falling into disrepair. The remaining industry is struggling with rising production costs: factories are moving production abroad, and skilled workers are in short supply. This bleak future could arrive sooner than expected – according to recent studies by the BDI and the EU Commission.

In the decades leading up to 2020, the recipe for success in German industry was quite simple: cheap natural gas and free access to the world's export markets. But those days are over. Gas is expensive, exports are weakening: the USA is sealing itself off, and China is becoming increasingly difficult for German companies. Therefore, ‘business as usual’ is no longer an option. European and German industry are at a decisive turning point. A comprehensive transformation is unavoidable if they are to meet the challenges of a changing global economy, climate change and technological upheaval. Particularly affected: the process industries and the mechanical and plant engineering sector, two central pillars of the German economy.

High energy costs and growing competition – Europe under pressure

Both studies – by the BDI and the EU Commission – paint a clear picture: Germany and Europe's competitiveness is waning. In particular, high energy costs are a heavy burden for energy-intensive industries. The price gap with the US is widening as gas and electricity prices there are significantly lower. While the US and China are strengthening their industries with government funding programmes, such as the Inflation Reduction Act, production costs for European companies are rising. German and European policymakers have not yet taken sufficient countermeasures – a gap that urgently needs to be closed, as BDI and the Draghi Report agree.

Trade fair visitors at a machine exhibit at POWTECH 2023 — The mechanical and plant engineering industry in Germany is under great pressure to transform, according to the current BDI study.

Shortage of skilled workers is becoming a brake on innovation

Another alarming finding of the studies: the increasing shortage of skilled workers. Experts are particularly lacking in technologically demanding and digitised areas. Without qualified personnel, necessary innovation processes will come to a halt – a risk that puts competitiveness under even more pressure.

Process industries at a crossroads: between crisis and new beginnings

The chemical, steel and aluminium industries are facing a profound structural change. The sharp rise in energy costs is leading to an erosion of competitiveness, which is already resulting in the relocation of production abroad. Studies are urgently warning of a deindustrialisation that could permanently weaken Europe as a business location. But there are also opportunities: the switch to CO2-neutral production processes could strengthen the market position of these industries – provided there is government support. Without it, there is a risk of a permanent loss of production capacity, which would weaken both Germany and Europe.

Mechanical and plant engineering: between transformation and tradition

The mechanical and plant engineering sector, traditionally one of Germany's core competencies, is also under pressure. The BDI report emphasises that dependence on fossil-based technologies and the slow transition to emission-free technologies represent a major challenge. The costs of the transition are high, and the shortage of skilled workers is further exacerbating the situation. At the same time, the EU Commission highlights the immense importance of digitalisation and artificial intelligence for the future of the industry. Those who don't catch up now risk being left behind.

Expert forum at POWTECH 2023 — The shortage of skilled workers is mentioned in both studies as one of the biggest obstacles to innovation and growth.

Transformation to sustainability as an opportunity

Despite all the challenges, both studies also offer positive perspectives. The necessary transformation can become a driver for innovation, particularly in the field of green technologies. The switch to climate-neutral production and the development of new energy technologies open up enormous growth opportunities for companies in Germany and throughout Europe. The EU Commission emphasises that decarbonisation could reduce Europe's dependence on fossil fuels and strengthen competitiveness. The BDI sees great potential in technologies such as hydrogen production and energy-efficient systems for expanding the market position of German companies.

Setting the course: How the transformation can succeed

To successfully master the transformation, significant investments in infrastructure, digitalisation and new technologies are necessary. The expansion of electricity grids, hydrogen infrastructure and CO2 transport capacities are essential. The EU Commission is also calling for a harmonised regulatory framework and greater cooperation between member states to lower energy prices and strengthen the single market.

A key area of action is overcoming the shortage of skilled workers. A targeted campaign to recruit skilled workers, promote training and continuing education, and encourage the immigration of qualified workers is crucial. At the same time, innovation processes must be accelerated. State support and private investment play a key role here. Bureaucratic hurdles must be reduced and approval procedures accelerated to make room for new technologies.

Conclusion: transformation with historic potential

German and European industry is facing one of the greatest transformations since the post-war period. The challenges are enormous, but so are the opportunities. In particular, the process industries and the mechanical and plant engineering sector can play a leading role in the global climate transformation and open up new growth areas. But to realise this potential, decisive investments and close cooperation between politics, business and society are needed. Now is the time to set the course and actively shape the change – for a strong, sustainable and competitive industry in Europe.

Author

Armin Scheuermann

Chemical engineer and freelance specialised journalist