The decline of German industrial production and the rise of the right in Saxony-Anhalt: complex economic challenges

Industrial production in Germany suddenly declined last July, affected by a sharp decline in automobile sector production, an indication of continuing pressures facing the industrial sector in the largest European economy.

The Federal Bureau of Statistics announced on Monday that industrial production fell by 1.1 percent during July compared to the previous month, contradicting the expectations of analysts polled by Reuters, who had expected it to rise by 0.1 percent.

The Bureau attributed this decline mainly to a decline in automobile industry production by 9.2 percent, noting that this was the result of a halt in production for several weeks, according to the German Automotive Industry Association (VDA).

Despite the monthly decline, the less volatile measure on a 3-month basis compared to the previous three months showed that industrial production rose by 0.4 percent during the period from May to July, compared to the previous three months.

On an annual basis, industrial production fell by 1.6 percent during July, compared to the same month in 2025, after adjusting for calendar effects.

After reviewing the preliminary data, production stabilized last June at the level of the previous month, instead of rising by 0.2 percent, as previous data showed.

On the other hand, new industrial orders increased by 2.5 percent during July compared to the previous month, after adjusting for seasonal factors and working days, according to the Statistics Bureau, which announced this data on Friday.

The Saudi financial market is approaching a new milestone in its path of openness to international investors, with the possibility of raising the ceiling on foreign ownership in listed companies returning to the fore, in a move that could open the door to new inflows worth billions of dollars, and at the same time raise a question about the extent of the market’s ability to transform regulatory openness into sustainable investment demand.

Morgan Stanley estimates that raising the foreign ownership ceiling from 49 percent to 75 percent may attract about $4.3 billion in flows that follow the indices, while flows may rise to $7.4 billion if the cap is completely abolished.

These expectations came after the appointment of Mazen Al-Sudairi as Chairman of the Capital Market Authority, in a move that strengthened investors’ expectations of the possibility of proceeding with new measures aimed at increasing and deepening the attractiveness of the Saudi market and attracting more foreign capital.

However, Saudi stock market data show that ownership by foreign investors is not necessarily distributed according to the size of the companies or their market values, as “Rasan” Company tops the list in terms of the percentage of foreign ownership at about 38.87 percent, followed by “Al-Sharq Pipes” at 30.05 percent, then “Al-Babtain” at 26.42 percent, and “Edarat” at 24.22 percent.

The list of companies with the highest foreign ownership also includes “Mobily” at 23.19 percent, “Jarir” at 21.95 percent, “Saudi National Bank” at 18.92 percent, “Tawuniya” at 18.88 percent, and “Extra” at 17.90 percent.

These discrepancies raise questions about the extent to which raising the ownership ceiling alone can boost foreign demand for Saudi stocks, and whether increasing flows will depend more on the attractiveness of listed companies, their valuations, and financial performance, in addition to any anticipated regulatory changes.

Financial markets analyst Abdullah Al-Hamid believes that raising the ownership ceiling for foreign investors will reflect positively on foreign investment flows to the Saudi market, through two main paths: The first relates to managed funds that track global indices, such as Standard & Poor’s and FTSE, indicating that raising the percentage of ownership allowed for foreigners to 75 percent or 100 percent may increase the potential weight of the Saudi market in these indices, resulting in flows that follow the index weights, regardless of the attractiveness of investing in the stocks themselves.

The second path, according to Al-Hamid, is represented by funds managed with active strategies, which may need a longer time to enter, given that their investment decisions depend on the attractiveness of the market and the performance of companies, and not on the weights of indicators.

He said that raising the ceiling on foreign ownership of listed companies would have a “positive result” on the market, expecting flows in the best scenarios to reach about $7 billion.

Al-Hamid believes that the foreign investor’s decision to increase his holdings of Saudi stocks is also linked to the performance of the local economy, driven by “Vision 2030” initiatives, diversifying the economy and empowering the private sector, in addition to the attractiveness of market valuations, profit growth, and future expectations of companies. He added that the measures taken by regulatory authorities to facilitate the entry of investors, led by the Capital Market Authority and the Ministry of Investment, enhance the attractiveness of the Saudi market for international investors.

He pointed out that leading companies, such as “Al Rajhi Bank” and “Al Ahli Saudi Bank,” will be among the most prominent potential beneficiaries of raising the ceiling on foreign ownership, in light of global investors’ interest in stocks with large weights in indices.

On the other hand, financial and economic advisor Dr. Hussein Al-Attas believes that raising the foreign ownership ceiling will be a positive step for the Saudi market, but it is not the only or main factor in increasing flows, as most of the listed companies actually remain far from the 49 percent ceiling.

He explained that the direct impact of the step may be concentrated in a limited number of stocks that enjoy high foreign demand or face restrictions on their relative weights in indices, while its broader impact is to remove a future obstacle for global investors and institutions and expand the investment space in the Saudi market.

Al-Attas said that the foreign investor's decision to increase his allocations to the market is governed by several factors, most notably valuations, profit growth, liquidity, governance, and depth of the market, in addition to the ease of entry and exit from investments.

He added that the clarity of legislation, the continuity of economic reforms, and the diversity of investment opportunities have become important factors, especially with the transformation that the Kingdom is witnessing in the technology, tourism, logistics, energy and mining sectors.

Al-Attas pointed out that there is a gradual change in the appetite of foreign investors, from investing linked to indices and leading stocks to searching for more specialized growth opportunities. He explained that the foreign investor has become more selective, and no longer views the Saudi market as only an oil or banking market, but rather as a market that provides opportunities related to economic transformation and “Vision 2030.”

Al-Attas expected the continued presence of foreigners in blue-chip stocks, given their liquidity, depth, and ability to absorb large institutional investments, but he believed that the greatest potential growth in ownership would come from high-growth companies, especially in new or less-represented sectors in global portfolios, such as technology, health care, consumer services, and logistics.

He believes that increasing the depth of the market and expanding the base of companies and sectors capable of achieving sustainable growth in profits will be the most important factor for increasing foreign allocations during the coming period, noting that raising the ownership ceiling is important, but the investor ultimately needs great investment opportunities, high liquidity, attractive valuations, and companies capable of transforming economic growth into tangible growth in profits and returns.

Meanwhile, Saudi stock market data showed limited changes in the ownership of foreign investors in a number of listed companies during the session of September 1, 2026, with varying increases and decreases in ownership percentages recorded.

The increases included several companies, led by “Al-Amkam” with an increase in foreign ownership by 0.57 percentage points to 5.42 percent, and “Yanbu Cement” with an increase of 0.50 points to 9.39 percent, while ownership in “Misk” rose to 7.04 percent, and “Extra” to 18.26 percent.

On the other hand, foreign ownership recorded declines in a number of companies, including “Rasan”, which fell to 39.29 percent, “Al-Babtain” to 25.56 percent, “Edarat” to 24.31 percent, “Etihad Etisalat” to 22.67 percent, and “Jarir” to 22.04 percent.

In conclusion, raising the ceiling on foreign ownership represents a new step in the process of opening up the Saudi market, but it does not alone guarantee the flow of more capital. Recent ownership movements reveal a clear disparity in investor appetite among listed companies, confirming that the attractiveness of stocks will remain linked to earnings growth, performance, valuations, liquidity and market depth. Hence, the real test lies in the market's ability to transform regulatory openness into sustainable investment opportunities that attract foreign capital.

The far-right Alternative for Germany (AFD) party achieved a historic result in the regional elections in the state of Saxony-Anhalt in eastern Germany, leading with more than 44 percent of the votes. Its political rise imposes an economic question no less important than the electoral gain: Can the party turn its promises of “economic prosperity” into results in a region facing a severe labor shortage, population decline, and pressures on industry and public finances?

The party pledged to reduce burdens on companies and families, reduce regulatory restrictions, and reduce energy costs... but these promises collide with accumulated structural challenges in Saxony-Anhalt and in large parts of eastern Germany. The state needs more workers and investments to maintain its productive capacity, while the party's agenda includes tougher immigration policies, along with major changes in energy policy and public spending. Hence, Saxony-Anhalt turns into a practical test of the extent to which the Alternative for Germany (AfD) is able to reconcile its political program with the needs of an economy that already suffers from a lack of human resources and investment.

One of the biggest ironies is that reducing dependence on foreign labor, which is one of the main themes of the AfD discourse, comes at a time when Saxony-Anhalt and other regions in the east of the country are suffering from a growing labor shortage.

Economic estimates indicate that about a third of workers in the state are approaching retirement age, while over the past decade the state has lost more than 40,000 German workers, while the number of foreign workers has increased by more than 50,000.

The gaps are concentrated in sectors such as health care, hospitality, construction, logistics services, and food industries, which are sectors that are difficult for companies to expand their activity without increasing the labor supply.

The Halle Institute for Economic Research, known as IWH, estimates that the state could face a labor shortage of about 32,000 people by 2031. The number could rise to about 46,000 if tougher immigration policies lead to a decline in the influx of foreign workers.

Here one of the most difficult equations appears before the party: How can faster economic growth be achieved while reducing one of the main sources of new employment?

In its economic program, the Alternative for Germany focuses on easing restrictions on companies, reducing energy costs, and reducing the burdens associated with climate policies, in addition to providing incentives to families and increasing support to encourage childbearing.

Party supporters argue that reducing bureaucracy and taxes and providing cheaper energy could revitalize companies and investments, especially in industrial areas hit by high production costs.

But implementing these promises faces the problem of financing. IWH estimated that the party's program in Saxony-Anhalt could lead to a financing gap of at least 2.2 billion euros annually, with the party pledging not to finance it through increased taxes or borrowing.

This gap becomes even more important for a state that relies heavily on public funding, and at the same time faces increasing costs associated with aging infrastructure and services.

The challenges are not limited to the labor market and public finances. Energy represents a crucial element for the future of German industry, especially in the east of the country.

Saxony-Anhalt includes an important industrial base, including a chemical sector that requires large amounts of energy. In contrast, the share of renewable energy sources exceeded 60 percent of electricity production in the state.

The Alternative for Germany wants to halt the expansion of wind energy and limit some solar projects, while focusing more on traditional energy sources, arguing that this could reduce electricity costs and restore competitiveness to the industry.

However, critics of this policy warn that reversing the energy transition path may make companies more reluctant to make long-term investments, at a time when Germany is trying to attract new projects in industries and technologies related to clean energy.

The party believes that reduced regulation and improved competitiveness could make eastern states more attractive to businesses, after years of these regions struggling to attract investment and retain residents.

But companies' investment decisions are not based solely on taxes and energy. The availability of skilled labor, the stability of the political environment, the quality of infrastructure, and the possibility of access to the European market are all factors that enter into investment calculations.

This makes the labor shortage a double challenge: it not only threatens the ability of existing companies to expand, but it may also reduce the region's ability to attract new companies.

It is true that Saxony-Anhalt's economy represents a limited part of the German economy, but the challenges it faces are not completely exceptional. They reflect broader problems in parts of eastern Germany, where a declining population and rising life expectancy intersect with labor shortages, weak investment and high energy costs.

From this angle, the mandate turns into a practical test of the AfD’s promises: Can the party’s policies reduce the costs of doing business and increase investment, without at the same time exacerbating labor shortages or increasing pressures on public finances?

The importance of the question increases as the party achieves a historic electoral result, at a time when the formation of a government capable of implementing its economic program is still unresolved.

Ultimately, the AfD's economic challenge is not just to promise cuts in taxes, energy and bureaucracy, but to demonstrate that these policies can address the structural causes of weak growth.

The regions in which the party has risen need more employment, investments, and productive capacity, while its program includes trends that may limit one of the sources of employment, redraw energy policy, and at the same time impose restrictions on spending and borrowing.

Therefore, Saxony-Anhalt may be more than just a state that witnessed significant electoral growth; It is an economic laboratory for the extent of the ability of the populist right to transform its promises of growth into results in areas that need practical solutions to the problems of population, employment, industry, and finance.