(Bloomberg) -- Some of Germany’s biggest industrial firms have started to make deep and lasting cuts, an acknowledgment that persistent headwinds like higher energy costs and muted economic growth now require structural changes. 

“We are not simply postponing investments,” BASF SE Chief Executive Officer Martin Brudermüller said Tuesday as he announced a plan to cut investment by almost 15% over the next four years. “We are reducing the number of projects and will implement alternative measures that involve lower” capital expenditures.

German industrial companies from BASF to Volkswagen AG are facing up to a new reality after profiting for decades from cheap Russian gas, China’s insatiable demand for their goods and low interest rates. The challenges have been building for years, and are no longer viewed as temporary problems. 

Workers are starting to feel the effects in earnest.

“Lack of new orders continues to have a negative impact,” said Klaus Wohlrabe, head of Ifo surveys. “Energy-intensive sectors in particular are planning with fewer staff.” 

German steelmaker Kloeckner & Co SE said late Monday it was cutting jobs after lowering its 2023 guidance. Chemical firm Lanxess AG is slashing 7% of its workforce as high energy prices and cratering global demand continued to drag on the industry. According to a recent survey by the Ifo institute, employment intentions for industry are at their lowest level since the early months of the coronavirus pandemic.

At the same time, companies are confronting a decline in global demand, particularly in China, which has driven profit growth across industries in recent years. That trend is hitting Germany’s biggest manufacturing exporters, like the automotive industry.

Mercedes-Benz Group AG shares slumped last week after the automaker reported a drop in margins and inflation raised the cost of everything from parts to labor. Volkswagen said its redoubling cost savings at its namesake brand. 

Overall German economic output shrank in the third quarter, according to the federal statistics agency, raising the risk that Europe’s largest economy is heading for a recession. Germany is the only major economy that the International Monetary Fund sees contracting this year.

BASF, which released its third-quarter results on Tuesday, said sales fell across all geographical areas with the drop particularly pronounced in Germany. The company said it now expects sales to come in at the lower end of its €73 billion to €76 billion guidance range this year. BASF plans to reduce its overall investment for the next four years to €24.8 billion from an original budget of €28.8 billion. 

Read more: BASF Sees Earnings at Low End of Guidance Due to Slump

The chemical firm also increased the scale of its cost-saving plan in back-office areas. It now sees total annual cost savings of €1.1 billion by 2026 across production and administration areas, up from the €500 million it announced in February. 

VCI, the country’s trade group for the chemicals industry, expects production to fall by 11% in 2023, excluding pharmaceuticals. Meanwhile, the European Chemical Industry Council anticipates a drop of 8% across the region this year, with no imminent recovery in demand expected.

“Our energy-intensive companies will no longer be able to continue for a long time with high energy costs that threaten their existence in Germany,” VCI President Markus Steilemann wrote earlier this month in an appeal for government help with higher energy costs.

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