Bavaria as a Business Location: Export Strength Dwindles Noticeably. ifo Study Sees Lasting Negative Factors for Domestic Manufacturing

Strong export surpluses as an expression of Bavaria’s economic strength are a thing of the past, according to a new study by the ifo Institute. The German state is parting ways with one of the hallmarks of its rapid postwar economic upswing. As of 2019, Bavaria is no longer a net exporter of goods; in other words, it purchases more goods from abroad than it exports. By 2022, its export deficit rose to an annual value of EUR 34.2 billion, pushed amongst other factors by unusual high energy prices. The data for 2023 is not yet fully available, but through November the deficit stood at EUR 9.5 billion. The ifo Institute assumes a long-term trend toward export deficits.

“Export surpluses or deficits are not inherently good or bad in themselves. But high exports are a sign of competitiveness and of healthy demand for goods ‘Made in Bavaria’,” says Oliver Falck, Director of the ifo Center for Industrial Organization and New Technologies and coauthor of the study. The study was conducted on behalf of the Chamber of Commerce and Industry for Munich and Upper Bavaria.

Industrial production in Bavaria, as in Germany as a whole, has also been falling since 2018. Austria and parts of the euro area recorded growth over that same period. In addition, capital investments in Germany have plateaued at a low level. “These are clear signs of pressure on Bavaria as an industrial location, including a lack of skilled workers, high energy prices, and shortfalls in digitalization. The automotive and chemical industries in particular are affected,” Falck continues.

Other reasons for Bavaria’s weakness in manufacturing include subsidy programs abroad and obstacles to global free trade. These factors are also accelerating the relocation of production by Bavarian manufacturers to Asia and the US.

Manfred Gößl, CEO of the Chamber of Commerce and Industry for Munich and Upper Bavaria, says that Bavaria won’t be able to disentangle itself from the even stronger downward trend in Germany as a whole. A profound adjustment is imminent. “Structural change is in full swing, and politics and business should make the best of it by embracing it proactively and creatively. Bavaria’s high-tech agenda is an important response and the correct course. The basic approach must be to focus on research and development, automation, digitalization, and artificial intelligence,” Gößl says.

“At the same time, the economy as a whole absolutely needs a tailwind in the form of tax incentives for investments, less bureaucracy, fast permit processes, modern infrastructure, a secure energy supply, and first-class education and training. And we mustn’t forget the strengthening of global trade with new free trade agreements in order thttps://www.ihk-muenchen.de/exportdefizito remove existing barriers and drive forward the necessary diversification,” Gößl says. He also points to the Bavarian economy’s great potential for the export of services, particularly digital services. However, according to the ifo analysis, Bavaria is currently also a net importer of services.