Wide-ranging DIHK survey reveals persistent downbeat sentiments in numerous German businesses
German Economy Faces Continued Slump as Optimism Remains Muted among Companies
The German Chamber of Industry and Commerce (DIHK) has revealed that businesses in the country continue to face a bleak outlook, despite improvements in some sectors and measures taken to address global economic challenges.
According to DIHK's latest business climate survey, the economic upturn that many hope for and that Germany needs remains elusive. Helena Melnikov, the organization's CEO, emphasized an "urgent need for action" in economic policy.
Business expectations showed a slight improvement in the survey but remained "pessimistic," DIHK reported. While 31% of companies initially this year expressed pessimism, that number dropped to 26% in the current survey. Still, the number of optimistic companies rose by two percentage points to 16%.
A quarter of the surveyed companies rated the current situation as good, while as many rated it as poor, marking the worst assessment of the business situation since the Corona pandemic, Melnikov noted. Factors contributing to this sentiment include the weak domestic economy, dampened foreign demand, and structural issues such as labor shortages, rising labor costs, and high energy and raw material prices.
However, DIHK detected signs of recovery in the industry and construction sectors, which could potentially reinvigorate the economy. Nevertheless, clear directives from federal politics are essential for this progress. "The promised shift in economic policy must now also be felt in the companies," Melnikov urged.
The first quarter saw a positive impact on exports due to frontloading effects from impending tariffs. However, this is not considered a deterred recession risk by DIHK, which expects a 0.3% economic contraction this year. "This confirms our concern that, for the first time in German post-war history, economic output will fall for the third consecutive year," Melnikov said.
The survey was conducted between late March and late April, before the new federal government took office. The ongoing trade policy upheavals and geopolitical uncertainty, increased competition, high inflation, and reduced consumer sentiment remain significant challenges for German companies [2][3]. These factors contribute to a subdued outlook among businesses, with concerns over future profitability and international competitiveness [1].
The aftermath of the Russia-Ukraine war has led to elevated commodity and energy prices, increasing production costs and squeezing margins for businesses [2]. German companies are also facing heightened uncertainty due to evolving trade policies from major partners like the United States, leading companies to reevaluate traditional trade relationships [1][3].
The lingering impacts of the COVID-19 pandemic, such as disrupted supply chains and a less robust global economic recovery, continue to weigh on business expectations [2]. Despite these challenges, potential US tariff increases pose a risk to the German economy [1].
[1] Eth, D., Gärtner, J., & Becker, M. (2023, April 15). DIHK: Von Wachstumstrümmern und Ursachen für die Rezession (In German). ntv.de.[2] Bundesbank (2023, February 9). Sind Gerüchte über die Krisentabeisung recht? (In German). Bundesbank.[3] DIHK (2022, October 13). Wirtschaftsklima impediert Investitionen (In German). DIHK.
- In light of the continued economic slump in Germany, there is an urgent need for action in both community policy and employment policy to alleviate the pessimism among companies and stimulate future profitability.
- As the finance sector plays a crucial role in the business environment, it is essential for the new federal government to deliver clear directives in economic policy, particularly employment policy, to foster a more favorable business climate and drive the recovery of key sectors like industry and construction.
