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Current Affairs

‘Phantom limb’: report blames China shock for Germany’s industrial malaise

Germany has been warned that a “China shock” to its trade economy is the biggest driver of its industrial slump, in a new report that…

By Samantha Johnson / May 20, 2026
Germany has been warned that a “China shock” to its trade economy is the biggest driver of its industrial slump, in a new report that urges Berlin to throw its weight behind stronger EU measures against Beijing.

Much soul-searching has been under way in Berlin over recent years, with the German government focusing on deregulation in an effort to kick-start a sputtering economy.

According to the report from influential think tank the Centre for European Reform, the “China shock is now the most important cause of Germany’s malaise” – even if “it is the one Berlin remains least willing to confront”.

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The report’s authors, economists Sander Tordoir and Brad Setser, described the effect on Germany as Phantomschmerz, or phantom limb – “a pain felt where something vital has already been lost”.

“That missing limb is export demand, chopped off by China’s profound pressure on Germany’s industrial base,” they wrote.

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The report found that Germany’s exports to China as a share of GDP have fallen by more than 40 per cent since the 2021 peak and that, since mid-2025, Germany has been buying more capital goods from China than vice versa – a remarkable turnaround for Europe’s industrial engine.

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