Concerned businessmen and -women look into a computer screen
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"Too little investment, too much bureaucracy, and excessively high location costs–the German economy is stuck. It's losing ground in Europe and internationally," summarized Martin Wansleben, Chief Executive of the German Chamber of Industry and Commerce (DIHK), when presenting the results of the latest DIHK Economic Survey in Berlin.
Wansleben referred to the recent forecast by the International Monetary Fund, which ranks Germany 39th in growth among 41 advanced economies: "We are not only facing a cyclical but a persistent structural crisis in Germany", he warned on October 29 in Berlin.
The figures from the DIHK Fall 2024 Economic Survey, with responses from around 25,000 companies across all sectors and regions in Germany, do not offer reasons for optimism in 2025, stated the DIHK Chief Executive. "On the contrary, in some cases, feedback from companies raises concerns that things could get worse. For 2024, we're lowering our forecast to at best ‘zero growth'. For the coming year, we only expect zero growth as well. This would be the third consecutive year without real GDP growth!"
The poor expectations from early summer have now "materialized as business realities," reported Wansleben. "They are not brightened by hopes for improvements in economic conditions or any decisive economic policy actions, like medium- to long-term energy price reductions or rising incomes. We're seriously concerned about how Germany has become a drag on Europe's economy, unable to fulfill its role as an economic powerhouse."
"We are witnessing a solid structural crisis. High costs for energy and personnel, excessive bureaucracy, and tax burdens are now compounded by geopolitical uncertainties and a decline in domestic and foreign demand," Wansleben added.
According to the survey, only 26 percent of companies (down from 28 percent in early summer) rate their current business situation as "good." Almost as many rate it as "bad" (25 percent compared to 23 percent previously). The balance between positive and negative assessments has dropped to only 1 point (from 5 points in early summer).
The situation is worst in industry, where optimists are now a minority. Only 19 percent of companies rate their current situation as "good," while 35 percent describe it as "bad." The balance has dropped by 11 points to minus 16 points, well below the long-term average of plus 21 points.
"We last saw such a situation 20 years ago, during the severe crisis in 2002 and 2003. This is a clear alarm signal," warned Wansleben. "At that time, the government sought to address the crisis with the Agenda 2010 reforms. We need deep reforms now as well."
The automotive sector has been hit particularly hard, with its business assessment balance plummeting by 27 points to minus 31. "Here, the sector's profound challenges come into play," explained the DIHK Chief Executive, "such as high production costs and the transition to e-mobility, which demands additional adaptation and investment. The trend toward 'local-for-local' production and increasing serious competition on global markets further complicate matters."
A look at the financial situation underscores the difficulties: "Half of the companies in the automotive sector are currently reporting financial difficulties. Thirty percent of parts and accessories manufacturers face tougher access to external capital."
The business outlook for the coming months offers little hope for improvement. The share of companies with negative expectations has significantly increased: 31 percent foresee worse business conditions (up from 26 percent), while only 13 percent expect improvements (down from 16 percent). "For companies, there is no light on the horizon," said Martin Wansleben. "The recent ECB rate cut could be a glimmer of hope, though we don't see it reflected in our numbers yet."
Fixed asset investment remains well below pre-Covid levels, with no signs of improvement. On the contrary, a third of companies plan to cut back investment at their domestic locations, rising to 40 percent in industry. "The signs of deindustrialization are becoming more evident. Weak investment indicates a decline in industrial value creation," said Wansleben. "For an aging society also tackling challenges like economic decarbonization, productivity gains are the only way forward. But this requires significantly higher investment."
Weak investment sentiment also impacts employment plans. There is no widespread downsizing yet, but the era of falling or stable unemployment rates has come to an end. A quarter of all companies plan to reduce staff, while only about a tenth expect to hire more.
"Structural change is in full swing," Wansleben noted. "We are seeing major cuts, especially in the automotive and energy-intensive industries. Unlike recent years, future job losses will be more common." Currently, demographic trends are offsetting this – despite weak economic conditions, labor shortages are keeping employment relatively stable, though "that's small comfort," in Wansleben's view.
Once again, companies were asked to identify their main risks. Beyond geopolitical tensions and crises, businesses are concerned about Germany's location conditions. Over half of respondents rate uncertain economic policy (57 percent), labor costs (54 percent), and labor shortages (51 percent) as pressing business risks. Energy and raw material prices remain a concern for nearly half (49 percent), despite recent decreases.
Deteriorating location conditions are eroding the international competitiveness of German companies. Germany risks losing ground in global markets. Despite robust global growth, the export industry doesn't expect improvements over the next 12 months: only one in five companies anticipates an increase in exports, while nearly a third expects a decline. The link between solid global economic growth and the resulting boost for German export businesses, which in turn supports Germany's economy, is weakening.
Wansleben's conclusion: "The numbers are dramatic. It's time to change course. This negative trend must be stopped. We need rapid and targeted measures to improve economic conditions."
The government's growth initiative contains some good ideas, but it's far from sufficient. "Additional comprehensive reform packages are necessary," urged Wansleben. "I particularly emphasize tax relief through an investment-friendly corporate tax reform and the complete abolition of the solidarity surcharge. Bureaucracy reduction must also be tackled in a way that has a noticeable impact on companies." Europe, too, must play a role: "National governments have limited capabilities. If Europe doesn't take decisive steps to reduce regulation, economic recovery will remain elusive."
The complete survey results are available for download here:
