The industry is a central pillar of the national economy even though its significance has declined against the service sector over the past years. It accounts for roughly a third of the gross value added in Germany. The major indicators used for presenting the development in the industry are the index of orders received (only for selected branches of economic activity in manufacturing), the production index as well as absolute numbers on local units and employees.

In industries (including energy), labour decreased by 1.3% compared to the previous year (in the first quarter of 2006: –1.7%), in construction by 1.9% (first quarter of 2006: –2.7%) and in agriculture and forestry by 0.2% (first quarter of 2006: –1.3%). The job losses in these areas were overcompensated by employment gains in the service sector. Against the previous year, the number of persons employed in that sector rose by 1.2% (first quarter of 2006: +0.8%).

The relative increase in the total number of persons in employment is distributed evenly between employees and self-employed including family workers amounting to 0.5%, respectively. For the first time since the fourth quarter of 2004, there was an increase in the number of employees against the preceding year.

Indeed, industry forms the mainstay of the German economy and is the hub for all business activities. In comparison with other EU countries and the United States, its share of the economy as a whole is relatively large. In 2001, there were almost 6.4 million employees in around 49,000 industrial corporations. Sales totaled almost Euro 1.35 trillion. Exports accounted for more than a third of all products manufactured. Almost 98% of all companies had a payroll totaling less than 500 and as such belonged to the Small to Medium Enterprises, which counts for 40% of all jobs in the industry and whose sales account for some 33% of all industrial sales.

The importance of industries in the German economy has dwindled considerably over the past few years. As a result of long-term structural changes, between 1970 (in the former West Germany) and 2001, industry's contribution to the gross value added of all business sectors fell from 51.7 to 23.8%. The contribution of the public and private service sector has increased considerably. In 2001, these produced 20.2% of gross value added. Commerce, the hospitality industry and transportation account for 18.7%. Financing, leasing and corporate service providers have a share of 31%. In the industrial sector, rapidly expanding branches such as IT and communications technology and the aerospace industry have failed to make up the ground lost by the decline of such "traditional" branches as textiles and steel.

In Germany, 2.6 million industrial workers are employed by large corporations with a payroll of more than 1,000. All in all, the small group of large companies account for some 51% of total turnover.

The importance of industry is declining and it is increasingly being replaced by the service sector. At the same time, industry continues to be the backbone of the German economy and in comparison with other industrial countries such as Great Britain and the USA is extremely broad-based – eight million people work in industrial companies. The most important branches of industry are car-making, with sales of EUR 227 billion and 777,000 employees, followed by electrical engineering (EUR 152 billion, 799,000 employees), mechanical engineering (EUR 142 billion, 868,000 employees) as well as the chemical industry (EUR 113 billion, 429,000 employees).

5.1 Automobile Industry

This is one of the most important branches of the German economy. Germany is the world's third largest producer of automobiles, following the United States and Japan. Of the 5.12 million motor vehicles manufactured in the Federal Republic in 2002, more than 70% were exported.

The automobile industry has a long tradition in the east German states as well. Following unification however, the models produced under the old GDR regime stood no chance against international competition, and production of models which were technically obsolete was phased out. Several large carmakers from western Germany have now opened new plants in Saxony and Thuringia. In 2001 alone, the automobile industry invested more than Euro 800 million in east German states. This figure represented more than 10% of total investments in industry in eastern Germany that year. All in all, the West German automobile industry has invested around Euro 3.5 billion in East German states over the past few years. Once production is in full swing, around 370,000 cars a year will leave the modern assembly lines there.

In 2003, the average gross monthly earnings of full-time manual workers in Germany amounted to EUR 2,910 in the economic branch of "manufacture of motor vehicles, trailers and semi-trailers". Thus they were 18% above the earnings in manufacturing as a whole (EUR 2,469).

In the first quarter of 2005, between January and March, 680,000 diesel cars were produced in Germany, while the number of such cars produced in the same period a year earlier amounted to less than 630,000. Hence the share of diesel cars in the total production of passenger cars increased from about 39% in 2003 to 43.1% in 2004. In the first quarter of 2005, the relevant proportion amounted to 46.7%.

Car-making is one of the most important sectors in German industry, accounting as it does for every seventh employee and 40% of all Exports. Thanks to its six renowned manufacturers VW, Audi, BMW, DaimlerChrysler, Porsche and Opel (General Motors), Germany takes its place alongside Japan and the USA as one of the top three automobile manufacturers in the world.

With sales of EUR 142 billion in 2004, DaimlerChrysler is the third largest car manufacturer worldwide and the number one in the premium class. The company’s headquarters and its most important production plants are in Stuttgart, which is also home to Porsche. With sales of EUR 89 billion and a world market share of 11.5% in 2004, Volkswagen is Europe’s largest car-maker and another success story. BMW in Munich, with sales of EUR 44 billion, is also in the leading group of German automobile manufacturers.

5.2 Mechanical Engineering and Plant Construction

Most firms in German industry are engaged in mechanical engineering and plant construction. Traditionally, SMEs have predominated, and it is thanks to their flexibility and technological efficiency that Germany is among the world's leaders here. More than 80% of companies engaged in mechanical engineering are highly specialized SMEs with less than 200 employees. As component suppliers to industry and an innovative field they play an important role in the economy as a whole. In the international arena, the spectrum of products they offer is unparalleled, encompassing more than 20,000 different items - from consoles, printing machines and agricultural machinery to machine tools.

5.3 Chemical Industry

This is an important supplier of primary, intermediate and finished products for sectors such as health care, the automobile industry, the construction industry as well as for private consumption in Germany. Thanks to its state-of-the-art technology, innovative products and emphasis on research, it plays a leading role worldwide. In addition to the large firms in this branch, which rank among the world's most important corporations, there are also numerous small and medium-sized companies.

The chemical industry has a long tradition in the east German states. The aim of government policy has been to retain the core of the traditional chemical production regions in the East through a process of restructuring and privatization. The chemical industry is making considerable efforts to improve environmental protection, and has assumed a pioneering role in many areas.

5.4 Aerospace

The aerospace industry in Germany is a small branch, but nonetheless of enormous strategic importance. In proportion to sales, the amount the industry spends on R&D is considerably higher than in all other branches.

Aerospace is Germany's technology driver, combining almost all the high-tech of the information age: electronics, robotics, measuring and control technology, materials technology and regulatory technology. Innovations from the sector have proved to be an enormous boost for computer production and are put to use in several other branches of industry. Mobile communications systems, car navigation systems, live coverage of major sporting and political events, video conferences with people in distant countries and global research into the environment and climate would all be impossible without aerospace.

Following a lull at the beginning of the 1990s, the German aerospace industry has enjoyed a period of considerable growth. In 2002, 69,950 employees in the sector generated sales of EUR 15.3 billion. That year, civilian aviation contributed 68.3% of total sales, military aviation 23.1%, and space operations 8.6%.

5.5 Biotechnology

Worldwide, German biotechnology and genetic engineering is second only to the United States. It is one of the most innovative German branches and posts above-average growth rates.

In 2001, the number of companies primarily engaged in commercializing modern biotechnology rose 10% to 365. Sales posted by German biotechnology companies rose by 33% to over EUR 1 billion. A total of EUR 1.3 billion was invested in R&D, 71% more than in 2000.

The number of employees in the sector rose by 35% to 14,408. Modern biotechnology methods and genetic engineering are used by a whole host of companies in what has become known as the life-science sector.

Germany currently commits around 2.5% of its GDP to research and development (R&D), considerably more than the EU average of around 1.9%. The Federal Government plans to increase spending on R&D to 3% of the country’s GDP by the year 2010. Moreover, following the USA and Japan, Germany spends the most private resources on R&D, namely USD 40 billion.

5.6 Environmental Technologies

Be it technology for purifying sewage or for the use of renewable energies, German environmental technology is booming and is seen as one of the worldwide leaders. The number of jobs in the renewable energy sector has risen considerably. Around 130,000 people are now employed in this sector, which has a bright future ahead. At the same time, the use of renewable energy is a welcome fillip for the economy in general: From 2000 to 2001 alone, total sales for the sector soared by 20% to around EUR 8.2 billion. A portal for the transfer of environmental technology (www.cleaner-production.de) operated by the federal government provides a whole host of information on German environmental technology and offers an opportunity for those involved in environmental technology inside and outside Germany to contact one another.

For Germany, as one of the most densely populated countries in Europe (230 inhabitants per km²) the protection of the environment has become one of the most urgent tasks. The excessive strain on the environment and the resulting damage are caused by a variety of factors, including population density, a high degree of industrialization and the careless treatment of nature.

Ecological damage may be prevented by policies encouraging the set up of industries in any environmentally responsible way as well as by making the originator of such damage liable for its negligence. Environmental problems in Germany can mostly be solved in co-operation and mutual understanding between the state, the industry and the public, which over the past few decades has become increasingly aware of the problems caused by industrial pollution.

5.7 Electrical Engineering

With around 881,000 employees, the German electrical engineering and electronics industry is one of the largest industrial employees in the country. In 2001, the predominantly SMEs generated sales of over Euro 160 billion and between 1996 and 2000 invested over Euro 30 billion in Germany. Moreover, with exports totaling around Euro 105 billion, the sector is one of the strongest German export branches, and places third worldwide behind the USA and Japan.

5.8 Further Branches of Industry

Other areas which continue to be of great importance are the food industry, the textile and clothing industry (including the leather goods industry), metallurgy and metal-processing industry, mining, precision engineering and the optical industry.