Page 26 - bne IntelliNews monthly magazine October 2024

26 I Cover story bne October 2024
pressure. The list of American industries where manufacturing capability has been eroded is long.
Commercial shipbuilding in the US is particularly telling and now virtually non-existent. In 2022, the US had just five large oceangoing commercial ships on order, compared to China’s 1,794
and South Korea’s 734. The US Navy estimates that China’s shipbuilding capacity is 232 times larger than in the US and it costs 2-4-times more to build a ship in the US than it does in the Global South, Construction Physics reports. The story is the same in the navies where China is building the equivalent of the entire French naval fleet every four years, but orders in Europe for new battleships are a fraction of those in
the developing world.
Year End Orders for Large Oceangoing Ships
the lag in technology. And he said all this need to be fixed just to keep growth standing still.
EU is sliding into a "slow agony" and is “ignoring obvious problems” according to the former Italian prime minister. On top of these structural problems, the lack of cheap resources from Russia adds salt to the wound.
The nature of the European economy has been fundamentally changed by the sanctions and the wholesale remake
for global trade and energy markets, as Russia rapidly and successfully reoriented its oil trade from west to east. Over the last two years Putin has been remaking Russia’s trade and diplomatic focus, cutting off Europe and rebuilding in the Global South. The balancing point in the cost-profit divide has slid dramatically to the cost end of the beam for Europe as a result. Energy prices have doubled and the prices of inputs and commodities across the board have increased. The chemical giant BASF has shuttered or reduced the output of hundreds of its European factories and 15% of German industrial companies have left the Continent and full half are saying they are considering the same option.
A miasma is hanging over European business, and industrialists see little prospect of a return to the status quo unless the sanctions on Russia are dropped and the gas is turned back
on, according to bne IntelliNews’ conversations with the members of the German industry lobby in Berlin.
But it is not just big business of heavy industry that has been affected; Germany is worst off as it is the most vulnerable to these changes. Manufacturing is the backbone of its economy and makes
up around 20% of GDP – up to twice as
high as the 10%-15% in countries such as France, Italy and Spain. Energy costs are now double their pre-war prices, thereby putting swathes of once profitable German export-orientated Mittlestand small- and medium-sized enterprises (SMEs) firms out of business.
Those that can are leaving the
country in search of cheaper energy
and labour homes. But they are less welcome than they used to be. China
is tightening its grip as part of a fight
for control over key resources in a slowly escalating tit-for-tat trade war. The West is responding to China’s mounting challenge to Europe’s long- standing lead in the automotive and renewables sectors by imposing trade tariffs to shield its increasingly flabby industries. Resource prices in Europe are 4-5 times higher than in the autarkic US, bureaucracy is more complex
and taxes are exorbitant, says Draghi, putting further pressure on Europe’s companies.
A miasma of despondency is descending on Europe as the scale of the challenge ahead becomes increasingly clear.
“Eurozone flash PMIs sank into contraction territory in September as the effect of the Paris Olympics faded, underlining the weak – and apparently deteriorating – economic conditions in the bloc. This was reinforced by another drop in Germany's ifo index and a still tepid credit flow to households and companies. The near-term outlook for the eurozone economy is bleak,” Oxford Economics said in a note on September 27.
Draghi’s solution is to throw money
at the problem – massive amounts of money – and slash the red tape. He suggests annual investments of €800bn to stimulate EU industry over many years
2022
2021
2020
China
South Korea
Japan
Europe
United States
1794 626 441
734 7,765 20.1
587 612 533
319 288 284
5 3
4
Source: Brian Potter, Congressional Research Service
By contrast, as bne IntelliNews
reported, China is the most powerful manufacturing country in the world, and, thanks to its industrial Soviet legacy, Russia is the manufacturer powerhouse in Europe, beating even Germany. Investment is now pouring into all these facilities as both Russian and China prepare for a possible global war.
Draghi has spent the last year studying the reasons for Europe’s decline and released a 400-page report in September, “The future of European competitiveness”, calling Europe to action.
De-industrialisation
Draghi’s drill-down highlighted the ageing populations and the need to revamp defence and decarbonise economies. He especially highlighted
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“The nature of the European economy has been fundamentally changed by the sanctions and the wholesale remake for global trade and energy markets”