The Latest Numbers

Industrial production fell again in July. (cite index=”78-1″>Destatis reported on September 7 that industrial output declined 1.1 percent month-on-month against a market consensus of 0.3 percent growth and was down 1.6 percent year-on-year, after a 0.5 percent annual decline in June.</cite>

Unemployment is at 3.06 million. (cite index=”61-1″>The Federal Employment Agency reported 3,061,000 unemployed in August 2026, up 54,000 on the month and 36,000 on the year, with the rate rising to 6.5 percent. Agency head Andrea Nahles said the labor market showed little momentum beyond the usual seasonal pattern.</cite> (cite index=”61-1″>Employment on the domestic concept stood at 45.66 million in July, down 226,000 from a year earlier, and 140,000 workers were on short-time compensation in June.</cite>

Insolvencies are at a 21-year high. (cite index=”85-1″>The Halle Institute for Economic Research counted 4,996 corporate insolvencies in the second quarter of 2026 up 9 percent on the first quarter and the highest quarterly figure since the second quarter of 2005. Roughly 45,500 jobs were affected, against about 41,500 in the comparable 2005 quarter. June alone produced 1,702 filings, 12 percent above May and 20 percent above June 2025.</cite>

GDP is growing. (cite index=”69-1″>Output rose 0.3 percent in the second quarter of 2026 over the first, adjusted for price, seasonal and calendar effects.</cite> (cite index=”51-1″>Several institutes have upgraded 2026 growth forecasts to between 1.3 and 1.4 percent.</cite>

That combination growing GDP, growing industrial revenue, falling industrial output, accelerating job cuts, record insolvencies is the whole story compressed. The economy is expanding. The industrial employment base is not participating.

Exports Did Not Collapse. They Moved.

Germany’s exposure to foreign demand is real, but it is a particular shape. The industrial core is built for foreign buyers; the domestic service sector that surrounds it is comparatively insulated. When external demand shifts, the damage concentrates in one place which is what the employment data shows. It is not, however, what most framings of the German story assume, because the aggregate export picture is not one of collapse.

(cite index=”102-1″>German goods exports reached €817.8 billion in the first half of 2026, up 3.9 percent or €31.0 billion year-on-year. Imports rose 4.7 percent to €712.1 billion, leaving a trade surplus of €105.7 billion 0.7 percent below the first half of 2025.</cite> (cite index=”101-1″>In June, seasonally and calendar-adjusted goods exports hit €139.3 billion, the highest monthly figure Destatis has ever recorded, edging past the September 2022 peak.</cite>

Aggregate exports are at record levels. What has changed is where they go, and what happens to the two markets that used to define German industrial strategy.

China. (cite index=”106-1″>German exports to China fell more than 12 percent to just under €37 billion in the first half, dropping China to Germany’s ninth-largest goods market. In 2021 it was second, buying €104 billion.</cite> (cite index=”102-1″>China nonetheless remained Germany’s largest trading partner by total volume at €125.5 billion, ahead of the United States at €123.7 billion and the Netherlands at €109.3 billion</cite> because of what Germany now buys, not what it sells.

The United States. (cite index=”100-1″>In the first quarter, exports to the US fell 12.1 percent to €36.2 billion while imports rose 1.9 percent, cutting Germany’s US trade surplus 30.5 percent to €12.4 billion. Motor vehicle exports to the US fell 28.4 percent.</cite> (cite index=”106-1″>Across the half, exports to the US fell about 6 percent to just over €74 billion while imports from the US rose 7.1 percent.</cite> (cite index=”104-1″>A 15 percent US tariff ceiling has applied to most EU goods since August 21, 2025; the German Economic Institute puts the average effective rate at 14.4 percent.</cite>

In simple terms: Germany’s two largest customers are both buying less, and the export machine is compensating by selling more to Europe. That works arithmetically. It does not restore the high-margin capital-goods trade machinery, premium cars, chemical intermediates that supported industrial employment at the old level.

The Job Losses, in Detail

The EY Industriebarometer is the sharpest instrument here because it tracks revenue and headcount together, using Destatis data for firms with at least 50 employees.

· 2024: 56,000 industrial jobs cut.

· 2025: (cite index=”94-1″>124,100 cut, a 2.3 percent decline, as industrial revenue fell 1.1 percent following a 3.5 percent drop in 2024. Industrial insolvencies hit a 12-year high.</cite>

· Q1 2026: (cite index=”93-1″>headcount down 127,300 or 2.3 percent year-on-year</cite> (cite index=”96-1″>even as revenue grew 1.7 percent, ending the ten-quarter losing streak, led by an 18 percent revenue jump in metals on a 28 percent export gain. Automotive shed about 32,000 jobs over the year.</cite>

· Q2 2026: (cite index=”95-1″>revenue up 4.7 percent to €556.4 billion, a second consecutive growth quarter while the employment decline accelerated to 2.7 percent year-on-year, about 144,000 jobs in twelve months.</cite>

Cumulatively: (cite index=”93-1″>341,500 industrial jobs have been lost since 2019, more than 6 percent of the base roughly one in every seventeen industrial jobs in the country. Automotive has lost one in seven. Only chemicals and pharmaceuticals, up 3 percent since 2019, and electricals, up 2 percent, have added.</cite>

(cite index=”38-1″>The named programs are familiar: 50,000 at Volkswagen, 8,000 in buyouts at BMW, 13,000 at Bosch by 2030.</cite> (cite index=”1-1″>BDI Director General Tanja Gönner told the German press agency dpa in mid-2026 that the situation facing industry is “critical,” citing energy costs, bureaucracy, labor shortages, US trade policy and Chinese market distortions while maintaining the decline can be halted with the right investment conditions.</cite>

The pattern to notice is that the acceleration in job cuts came after revenue turned positive, not before. Firms that reduce headcount while revenue is falling are cutting to survive. Firms that reduce headcount while revenue is rising have concluded they do not need the workers.

The Insolvency Wave Is Broadening

(cite index=”13-1″>German courts registered 24,064 corporate insolvency filings in 2025, up 10.3 percent and the highest total since 2014.</cite> (cite index=”9-1″>DIHK chief analyst Volker Treier described it as an especially weak year for Germany as a business location, noting filings now average roughly one every 20 minutes.</cite>

2026 has run well above that. (cite index=”87-1″>IWH recorded 4,573 corporate insolvencies in the first quarter the highest since the third quarter of 2005, and above the level reached during the 2009 financial crisis. About 54,000 jobs were affected, the most since the third quarter of 2020, with manufacturing accounting for the largest share at roughly 16,000.</cite> (cite index=”85-1″>The second quarter then set a 21-year record at 4,996 filings. IWH insolvency research head Steffen Müller said failures remain at an exceptionally high level, hitting many industries and regions at once, and expects third-quarter figures above last year’s.</cite>

Two structural features are worth separating.

The failures are concentrated among the small. (cite index=”16-1″>Micro-enterprises of ten employees or fewer accounted for 81.6 percent of 2025 cases, according to Creditreform, which put total creditor losses at roughly €57 billion.</cite>

But the large failures are rising faster in percentage terms. (cite index=”11-1″>Filings by companies with revenue above €10 million reached 471 in 2025, up 25 percent on 2024 which had itself risen 35 percent. Restructuring specialists expect a further 15 to 20 percent increase in 2026.</cite>

The small firms are dying in volume. The large firms are starting to die at all.

Energy: The Cost Floor Did Not Come Back Down

(cite index=”31-1″>Eurostat data for the second half of 2025 put German business electricity at €0.2264 per kilowatt-hour third highest in the EU behind Ireland and Cyprus, against an EU average of €0.1837 and Finnish prices of €0.0748. Across the EU, energy-intensive industry paid roughly double US levels and more than 50 percent above China and India in 2025, a gap that has widened since before the crisis.</cite>

Berlin’s answer has been to subsidize rather than restructure. (cite index=”28-1″>The European Commission approved a German industrial electricity price on April 16, 2026 €3.8 billion running from 2026 through 2028 alongside €6.5 billion in federal money to cut transmission grid fees in 2026.</cite> (cite index=”26-1″>The Financial Times reported the scheme would reach roughly 2,200 companies.</cite>

That is relief for the largest electricity consumers. It reaches almost none of the roughly 24,000 mostly small firms filing for insolvency each year, and it expires in 2028 with nothing structural changed underneath it.

Input costs are also still climbing. (cite index=”76-1″>Producer prices of industrial goods rose 3.0 percent year-on-year in July 2026 and 1.1 percent on the month, while import prices were up 6.8 percent year-on-year.</cite> (cite index=”69-1″>Consumer inflation was running at an estimated 2.9 percent in August.</cite>

China: From Customer to Competitor

This is the pillar that has moved fastest, and it is the one that does not reverse with a business cycle.

(cite index=”36-1″>GTAI East Asia analyst Corinne Abele attributed the export decline to weak Chinese domestic demand and Beijing’s push toward domestic value chains, with German firms increasingly producing inside China itself.</cite> (cite index=”36-1″>Commerzbank’s Vincent Stamer read the same data as evidence China is catching up technologically and growing less reliant on Western suppliers.</cite> (cite index=”40-1″>The bilateral deficit widened by about €15 billion year-on-year to roughly €55 billion.</cite>

Sector by sector, the substitution is visible:

· Autos. (cite index=”43-1″>German car exports to China fell roughly a third in 2025, extending a decline that has erased more than half the sector’s shipments since the 2022 peak, according to the German Economic Institute.</cite>

· Machinery. (cite index=”34-1″>VDMA reported machinery exports down 0.8 percent nominally and 2.5 percent in real terms in the first half of 2026. The US is now the largest single market at 13.1 percent, with China down to 7.1 percent. The association expects the decline in exports to China, running since 2022, to continue amid weak demand and rising competition from Chinese suppliers in third markets.</cite> (cite index=”41-1″>China’s share of global industrial machinery exports has risen from 14.3 percent to 22.1 percent.</cite>

· Chemicals. (cite index=”41-1″>Chinese chemical exports to the EU rose 60 percent over the past decade while German chemical exports fell more than 14 percent.</cite>

(cite index=”35-1″>A Centre for European Reform analysis found China’s 2025 export volumes grew at more than twice the pace of global trade, accelerating to 15 percent volume growth in the first quarter of 2026. It cited Goldman Sachs estimates that the surge could subtract 0.2 to 0.3 percentage points from German growth annually through 2029, and a 2026 French government planning study warning that Chinese competition could threaten as much as 70 percent of German manufacturing output over the medium term.</cite>

That French figure is a measure of manufacturing output exposed to Chinese competition, not output forecast to be lost, and should be read that way. But the direction is not disputed. (cite index=”37-1″>Germany now imports more than it exports in precisely the categories it once dominated cars, trucks, buses, trains, aircraft, factory machinery and medical devices.</cite>

The Counter-Evidence

An honest account has to state the case for a genuine recovery, because parts of it are strong.

(cite index=”52-1″>The S&P Global Germany Manufacturing PMI rose to 54.3 in August 2026 from 52.2 in July, a 51-month high, with new orders up for a third consecutive month at the fastest pace since February 2022 and production growth the strongest in more than four and a half years.</cite> (cite index=”51-1″>Factory orders climbed in July for a third straight month.</cite> (cite index=”81-1″>The real stock of manufacturing orders in June was 9.3 percent above a year earlier.</cite>

Three qualifications apply.

First, the demand drivers are not the old model. (cite index=”55-1″>Firms cited defense spending, data center build-outs and stockpiling</cite> (cite index=”56-1″>with S&P Global’s Phil Smith noting the expansion was led by intermediate goods and partly reflects precautionary inventory building in a tight supply environment.</cite> Rearmament and AI infrastructure are real demand, but they are fiscally driven, concentrated in different firms and regions, and require different workers than the ones being released in Wolfsburg and Ludwigshafen.

Second, the survey data and the hard data disagree. The PMI says production growth is the strongest in four and a half years. Destatis says July output fell 1.1 percent on the month and 1.6 percent on the year. When sentiment surveys and official output series diverge this sharply, the official series is the one that eventually gets confirmed.

Third, employment is still shrinking, and shrinking faster. (cite index=”56-1″>The August PMI recorded continued workforce reduction, albeit at the mildest rate since September 2023.</cite> EY’s Q2 barometer shows the annual rate of decline accelerating.

Analysis: The Investment Signal

The clearest evidence that firms regard this as structural is not what they are saying. It is where they are putting capital.

(cite index=”103-1″>German direct investment in the United States fell to €4.3 billion in the first half of 2026 the lowest first-half level since 2023, down nearly two-thirds year-on-year, according to German Economic Institute calculations based on Bundesbank data. IW researcher Samina Sultan described it as a continuation of the downward trend since the start of the current US administration.</cite> (cite index=”104-1″>Against the first half of 2024, the drop is close to 80 percent. An ifo survey published July 22, 2026 found roughly a third of industrial firms postponing US investment projects, with the share cancelling outright nearly doubling to 16 percent.</cite>

Read alongside the domestic picture, this is the finding that ought to worry Berlin most. German firms are not investing at home, where energy costs roughly double the American level. And they are no longer investing in the United States either, where tariffs and policy volatility have made the calculation unanswerable. Capital that is not being deployed in either place is not building future industrial employment anywhere in the German accounts.

Distinguish two things that look alike in monthly data:

A downturn reverses. Orders come back, utilization rises, hiring resumes. The PMI and the order books are consistent with that, and (cite index=”48-1″>Chancellor Friedrich Merz’s €500 billion infrastructure fund</cite> is designed to accelerate it.

A relocation does not. When a chemical producer builds its next cracker on the US Gulf Coast because gas costs a third as much, that plant does not return when European prices normalize. When a Chinese machine-tool maker takes share in Southeast Asia, the German incumbent does not automatically win it back. When 341,500 industrial jobs disappear and the replacement demand is in defense electronics and data centers, the national arithmetic can balance while failing completely at the level of the individual worker and the individual town.

The EY revenue-versus-headcount divergence is the tell. Firms that cut while revenue rises have made a judgment about permanent capacity. Firms do not rehire into a cost base they have just proven they can operate without.

What to Watch

· Q3 2026 IWH insolvency data, due in October. Müller has already signaled it will run above last year. If failures finally fall alongside the PMI, the cyclical read strengthens materially.

· August industrial production, due in early October. Two consecutive monthly declines against a rising PMI would confirm the survey-versus-output divergence rather than resolve it.

· The EY Q3 Industriebarometer. If the annual employment decline exceeds 2.7 percent for a third straight quarter of revenue growth, the structural argument is effectively settled.

· German exports to China in H2. Stabilization would suggest the first-half drop was partly cyclical. Continued decline confirms displacement.

· The 2028 expiry of the industrial electricity price. Nothing beneath the subsidy has changed.

Conclusion

The 10,000-jobs-a-month figure that circulates in coverage of German deindustrialization is accurate for 2025 and now understates the case. EY’s second-quarter reading puts the twelve-month loss at roughly 144,000, or about 12,000 a month while industrial revenue grew 4.7 percent.

That combination is the finding. Germany built an industrial economy optimized for cheap energy inputs, a large and growing Chinese customer, and open access to its two biggest export markets. The energy input is gone. China is now the supplier rather than the buyer in most of the categories that defined German export strength. The US market sits behind a tariff wall Berlin has no realistic path to removing.

Aggregate exports have adapted, and are at record levels. GDP is growing. Revenue has turned. What has not adapted, and shows no sign of doing so, is industrial employment and the firms cutting it while their sales rise are telling anyone reading the data what they expect the next decade to require.

Key Takeaways

1. German industrial revenue grew 4.7 percent year-on-year in Q2 2026 a second consecutive quarter of growth while industrial employment fell 2.7 percent, about 144,000 jobs in twelve months. The rate of job cuts is accelerating as revenue recovers.

2. Industrial output still fell 1.1 percent month-on-month and 1.6 percent year-on-year in July 2026, against a manufacturing PMI at a 51-month high. Survey data and official output data currently disagree.

3. Corporate insolvencies hit 4,996 in Q2 2026, the highest quarterly figure since 2005, following a Q1 figure that exceeded the 2009 financial crisis.

4. Aggregate exports did not collapse they hit a record €139.3 billion in June and rose 3.9 percent over the first half. What collapsed is the composition: China down more than 12 percent to ninth place, the US down about 6 percent behind a 15 percent tariff.

5. German direct investment in the US fell to a three-year low of €4.3 billion in H1 2026, down nearly 80 percent from 2024. Firms are investing neither at home nor in their largest export market.

6. Since 2019, 341,500 German industrial jobs have gone roughly one in seventeen, and one in seven in automotive.

Sources

· Destatis, September 7, 2026 industrial production, July 2026 (via FXStreet)

· Destatis Q2 2026 GDP; August 2026 inflation estimate; July 2026 producer and import prices

· Destatis, August 2026 foreign trade H1 2026 and June 2026 (€817.8bn exports; €139.3bn June record)

· Destatis, May 2026 Q1 2026 trade with the United States

· Bundesagentur für Arbeit, August 28, 2026 labor market report, August 2026

· EY Industriebarometer Q2 2026 (August 2026) revenue €556.4bn, +4.7%; employment −2.7%, ~144,000

· EY Industriebarometer Q1 2026 (May 2026) −127,300; 341,500 jobs lost since 2019

· EY Industriebarometer Q4 2025 (February 2026) 124,100 jobs cut in 2025; industrial insolvencies at 12-year high

· IWH-Insolvenztrend, April 9 and July 9, 2026 Q1 (4,573) and Q2 (4,996) corporate insolvencies; Steffen Müller

· Reuters / Destatis, March 13, 2026 24,064 corporate insolvencies in 2025; DIHK’s Volker Treier

· Creditreform via Reuters, December 2025 micro-enterprise share; €57bn creditor losses

· Taylor Wessing, February 2026 large-company insolvency projections

· Germany Trade & Invest via Reuters, August 9, 2026 H1 2026 China and US trade

· German Economic Institute (IW) via Reuters, August 2026 German direct investment in the US; Samina Sultan

· ifo Institute survey, July 22, 2026 postponed and cancelled US investment projects

· German Economic Institute (IW) via Reuters, February 24, 2026 car exports to China

· VDMA via EUROMETAL, August 2026 H1 2026 machinery exports

· Centre for European Reform, May 2026 “China shock 2.0”; Goldman Sachs and French planning office estimates

· Eurostat H2 2025 non-household electricity prices

· European Commission / BAFA industrial electricity price approval, April 16, 2026

· S&P Global Germany Manufacturing PMI, August 2026, via Reuters

· Brussels Signal, August 2026 BDI’s Tanja Gönner