Poor Mood Persists for Several Businesses - Industry Provides Optimism - Persistent Negative Mood Persists Across Many Businesses - Industry Offers Optimism
Germany's Economic Outlook Remains Cautious, According to DIHK
German companies painted a generally pessimistic picture of their economic future in the spring survey conducted by the German Chamber of Commerce and Industry (DIHK). The mood remains dismal, with 26% of firms planning for a gloomy future, down slightly from 31% at the beginning of the year. Meanwhile, optimistic companies increased to 16% from 14%, indicating a slight improvement in business sentiment.
Helena Melnikov, DIHK managing director, commented that the current economic situation is the worst since the coronavirus pandemic. Despite a quarter of companies rating the current situation as good, an equal number sees it as poor. The weakness of the domestic economy, the dampening effect of foreign demand, and structural issues such as skilled labor shortages, rising labor costs, and persistently high energy and raw material prices are some of the factors contributing to the bearish sentiment.
However, the DIHK finds glimmers of hope in the industry and construction sectors, where signs of recovery are emerging. If clear signals from federal politics are forthcoming, these sectors could potentially drive the German economy once more. Melnikov emphasized that the promised shift in economic policy must translate into real benefits for businesses, and called for faster approval and planning procedures, lower energy costs, and streamlined bureaucracy.
The DIHK continues to express concern about the potential threat to the German economy from possible U.S. tariff increases. In an interview with "Morgenmagazin," Melnikov expressed serious concerns, stating that such a move would have a significant impact on German firms. According to the survey, expectations for German companies' foreign business have deteriorated significantly in the spring.
In the first quarter, front-loading effects related to impending tariffs had a positive impact on exports, but the DIHK does not view this threat as over. The chamber expects the German economy to shrink by 0.3% this year, confirming concerns that the country will suffer three consecutive years of economic decline, marking the longest period of weakness in post-war German history.
The DIHK's survey, which questioned around 23,000 businesses from almost all sectors and regions, was conducted between late March and late April. At that time, the new federal government was not yet in office.
[Enrichment Data]In addition to the overall economic outlook, the survey reveals that German companies at their international locations are more pessimistic about economic development compared to the autumn of the previous year. Only 19% expect improvement, down from 27%, while 33% expect deterioration, an increase from 22%. Subdued export prospects are expected for the coming year, with 29% predicting a decline, compared to 19% expecting an increase. The DIHK anticipates a 2.5% contraction in German exports in 2025, continuing the three-year contraction trend. The chamber expects the economy to shrink by 0.3% this year, representing a slight improvement over earlier forecasts of a 0.5% contraction. The dominant factor dampening global and German company sentiment is the volatile US trade policy, with adverse effects on companies at their foreign locations and contributing to global uncertainty. Other challenges for German companies include global geopolitical uncertainties, domestic economic policy risks, high labor costs, and weakened domestic demand.
- The DIHK anticipates a challenging outlook for German companies at their international locations, with only 19% expecting improvement compared to 27% in the autumn of the previous year.
- Helena Melnikov, DIHK managing director, emphasized that the promised shift in economic policy must address issues like streamlined bureaucracy, lower energy costs, and faster approval and planning procedures to help drive the German economy.
