The German economy possesses the inherent potential to navigate the challenges of transformation, but realizing this potential requires significant changes to the country’s innovation policy. This conclusion stems from a study conducted by the Ifo Institute commissioned by the Bertelsmann Foundation.
Oliver Falck, head of the Ifo Center for Innovation Economics and Digital Transformation, noted that the analysis shows a large portion of German industry is already moving in a future-oriented direction. He stressed that the current system needs a policy framework that supports this change, rather than hindering it.
The research created a Growth-Share Matrix for German industry, finding that approximately 76 percent of the gross value added in the manufacturing sector comes from industries where the value component of the most rapidly growing products outweighs that of the most shrinking products. This indicates that German industry is fundamentally capable of managing this multi-dimensional transformation.
Expert analysis highlights that high-technology sectors, such as pharmaceuticals and IT, are particularly well positioned. These industries demonstrate significant increases in investments and exports, supported by high shares of growing products. Furthermore, Christian Pfaffl, an Ifo researcher, pointed out that mid-technology sectors, like mechanical engineering and parts of the chemicals industry, have already updated their product portfolios to focus on future markets.
In contrast, the traditional automotive sector faces considerable adjustment pressure due to the proportionally greater weight of internal combustion engines with declining production values compared to growth drivers like electric vehicles. Nevertheless, the majority of sectors currently contributing below average to the gross value added possess portfolios with a higher proportion of strongly growing products versus strongly diminishing ones, including areas like glassware and metal production.
According to the experts, it is crucial to accelerate structural change rather than delay it through policies aimed at maintaining existing structures. Falck argued that improvements are needed in the foundational conditions governing disruptive innovation and robust startups. Specifically, he recommends fostering an innovation-friendly capital market, tax regulations that do not disadvantage risky investments, and a more flexible labor market to facilitate necessary workforce adjustments.