As the G7 powerhouse is losing steam, its eastern neighbor is growing stronger.
Germany is still haunted by the spectre that idle factories cast last year, when gas prices soared.
Deindustrialisation, a phenomenon previously unimaginable, has been deemed a serious threat by the impact of the Ukraine War.
But hop on an autobahn, drive east and for a few minutes you’ll see a very different scene in Poland.
While Germany worries about its competitiveness, Central Europe’s neighbour continues to increase its manufacturing power.
According to the Organisation for Economic Co-operation and Development’s (OECD) data, the output per person has risen 85pc in the last decade to $43,113.
This compares to a growth of only 46pc in Germany, and 55pc across the EU on average during the same time period.
Germany’s manufacturing industry shrank in the decade up to 2022, from 20.3pc to 18.5pc. Poland’s factory output grew from 16.7pc to 17.7pc in the same time period. The output has jumped from $101bn to $122bn.
Tomas Dvorak is a senior economist with Oxford Economics. He says, “Poland has had a great deal of success in the past few years.” “Not only the industrial sector, but the entire economy has done well.
“Poland may be the only European country – and possibly even worldwide – whose industrial production not only exceeds pre-pandemic levels, but has actually returned to pre-pandemic trends.
“The energy crisis, Covid and the last three years have not affected Polish industry.” “And that’s amazing.”
Dvorak says that economists still don’t understand why Poland is so resilient.
Others attribute the boom to government policies that encourage growth, while structural factors like lower wages and cheaper land have also played a role. Good timing is also a factor.
Investment is also being boosted by the “nearshoring” trend. This involves Western companies bringing back supply chains from countries like China, closer to their home.
Since the fall of communism, Poland has seen a significant increase in its industrial sector.
Its skilled and highly educated workforce, combined with its lower wages, made the country attractive to a wide range of industries.
According to the German Federal Statistics Office, the average hourly wage of Polish manufacturers was $12.33 per hour in 2021. This is compared to $49.56 for German workers.
Poland was for a long period of time a younger brother to the German industry. Poland was an important part of the German automotive industry, manufacturing engines, car seats and tyres, among others. The automotive industry still accounts for around one tenth of Germany’s total manufacturing output.
Ministers in Warsaw, however, want to see the country produce more expensive items. They launched a charm campaign to attract foreign money in order to invest in cutting-edge technology and new products.
Intel, the chip-making giant announced earlier this year a $4.6bn facility near Wroclaw . The government of Warsaw also pursues investment from Taiwan Semiconductor Manufacturing Company which seeks to hedge geopolitical risk posed by China.
Poland is also a leader in securing investment for “gigafactories”, which will be at the core of the production of electric vehicles.
By 2022, Central Europe will surpass the US as the second largest battery producer in the world, with a production of 73 Gigawatt-hours per year – double the output of Germany. The LG Chem lithium-ion cell factory in Wroclaw, Poland is the biggest built in Europe to date. China’s 893 gigawatt-hour output dwarfs both Poland and Germany.
Massive infrastructure growth is the foundation of all industrial investment. Between 2011 and 2021, Poland constructed 429 miles motorways compared to Germany’s 193 – although Poland started from a much smaller base.
Michal Piekarski is the head of Baker McKenzie’s energy and infrastructure group in Warsaw.
Poland is growing at a time that Germany is declining. The German Industry Federation (BDI), which has been warning its members that the rising prices of electricity and gas are due to the ending of cheap Russian gas, is causing them to relocate or scale back.
BASF is the most totemic of these examples. It is closing down its plants in Germany, laying off thousands of workers and expanding in China while at the same time cutting back on jobs in Germany.
Olaf Scholz has admitted that the problem is deeper than the price of gas. He has pledged to reinvent Germany as a renewable power juggernaut by 2030, with an 80pc target.
Experts say Berlin’s nuclear policy is one of the most disappointing.
The country has closed its remaining nuclear plants ahead of schedule, just as it is scrambling for clean electricity. The last three nuclear power plants closed in April, removing four gigawatts from the grid.
Poland, which has a border with Ukraine, and is even more exposed to Russia than it already was, is moving in the opposite directions. The country that generates 70% of its electricity from coal is rushing to introduce renewables, including the first generation of nuclear plants.
Ministers signed a contract last week with US giant Westinghouse for the construction of a AP1000 nuclear reactor that will be operational by 2033. Work has already begun. Atomic energy is expected to provide up to 2/5 of future electricity requirements in the country.
Industria, Synthos and other industrial groups are working to build small modular nuclear reactors with the help of Rolls-Royce Nuclear Energy and GE Hitachi Nuclear Energy.
Mark Nelson, managing Director of Radiant Energy, said that the Polish nuclear program could provide factories with more stable and reliable power sources – an attractive proposition for foreign investors, compared to Germany’s more volatile energy system, which is reliant more on renewables, coal, and gas.
He said, “Nuclear is able to guarantee you year after year ultra-cheap and ultra-clean electricity.” You can invest in large operations if you know this as an industrial company.
Germany’s unease about nuclear power is evident in its lobbying efforts against French proposals for reforming the EU electricity market. Paris wants to be in a position to sell nuclear energy at a cheaper rate that is closer to its cost of production, but Germany resists.
Berlin’s decision, to close early its nuclear plants, has forced it to reopen coal-burning power stations in order to survive the winter of next year. This is a self-defeating move according to experts.
At the moment, Germany is the undisputed leader of EU industry. It boasts 26pc of manufacturing output, compared with Poland’s 6pc. The gap is closing.
Dvorak, from Oxford Economics, believes that Poland must evolve in order to remain competitive. “The more a country gets richer, the higher its wages will be. This makes it less competitive.
There’s no other choice than to move up the value chain if you wish to maintain the manufacturing sector.
Scholz and his supporters will find it difficult to comfort themselves, as the trip to Warsaw seems shorter than ever.