German Economy Loses Momentum

Business Climate Deteriorates

Only 26% of German companies report good business conditions, while 25% describe their situation as poor. This downturn affects businesses of all sizes, with even large corporations reporting significant declines in performance.

German businesses face a perfect storm of challenges:

• Weak domestic demand (59% of companies affected)
• Bureaucratic hurdles and regulatory framework issues (57%)
• Rising labor costs (54%)
• Skilled worker shortages (51%)
• High energy and raw material prices (49%)

Industrial Sector Hit Hardest

The manufacturing sector shows particularly worrying signs. The automotive industry, traditionally Germany’s industrial backbone, has experienced a dramatic downturn, with its business climate index plummeting to -31 points. Metal producers (-44 points) and furniture manufacturers (-27 points) also struggle significantly.

Investment and Employment Outlook

The survey reveals a cautious approach to future investments and hiring:

• Only 12% of companies plan to increase their workforce
• 24% expect to reduce employee numbers
• One-third of businesses are cutting back on investments
• 41% report problematic financial situations

Not all sectors are struggling. The pharmaceutical industry shows strong performance (+41 points), and legal and tax consulting services are thriving (+55 points). Civil engineering benefits from ongoing infrastructure projects.

Looking Ahead

The data suggests that Germany faces structural challenges beyond cyclical economic fluctuations. High energy costs, excessive bureaucracy, and geopolitical uncertainties burden businesses. Germany’s financial powerhouse status could be at risk without significant policy changes and improved framework conditions.

The DIHK survey, which represents feedback from thousands of German companies, is a crucial indicator of the country’s economic health and emphasizes the urgent need for action to sustain Germany’s competitive position in the global economy.