"We are stuck in a double crisis," explains DIHK Chief Executive Officer Helena Melnikov. "In addition to Germany’s structural problems, there are the economic consequences of the war in the Middle East. Weakened by three years of recession and stagnation, many feel they’ve reached their limits. Unlike previous crises, many companies no longer have reserves to counteract the pressures. We are living off the substance here in Germany." 

The companies assess their business situation as negatively as during the corona pandemic: More than one in four companies describes its situation as poor, only 23 percent as good. The situation is particularly strained in commerce: Here, 35 percent rate the situation as poor. The growth forecasts for 2026 have been adjusted downward from 1.0 percent at the beginning of the year to just 0.3 percent. 

Energy and raw material costs become top business risk

"Even before the current crisis, companies were heavily burdened by high labor costs, energy prices, bureaucracy, and taxes. The recently massively increased energy and raw material costs are, for many, the straw that breaks the camel's back," explains Melnikov. "Shortly after the outbreak of war, there were not only price jumps in oil, gas, and petrol but also for building materials and plastics. The cost pressure is now affecting almost all sectors of the economy. Many companies can no longer cope with these pressures." 

Accordingly, 70 percent of companies cite energy and raw material costs as the greatest business risk (beginning of the year: 48 percent). At the same time, the top risks from early in the year remain at high levels: rising labor costs (57 percent), weak domestic demand (56 percent), and uncertain economic conditions (58 percent) are frequently mentioned risk factors. 

The Middle East conflict also affects the global economy and intensifies international competition for German exporters. Export prospects of the industry, which had given some cause for cautious optimism at the beginning of the year, no longer offer any reason for confidence: Three out of ten companies expect declining exports, only 19 percent anticipate increased exports. 

Poor economic conditions restrain investments and labor market

The poor sentiment also weighs on investments. Only 22 percent of companies plan to increase their investment budgets, while more than a third need to reduce them. If companies invest, they mainly do so to replace machinery, plant, or equipment – at 70 percent, this is a record high. Investments in capacity expansion, however, are at a low last recorded during the 2008/2009 financial crisis. Product innovations also play only a minor role in investments anymore. 

The poor economic conditions have long reverberated in the job market. Nearly a quarter of the companies surveyed plan to reduce staff, while only one in ten wants to hire more employees – the lowest value since the corona pandemic. This is also reflected in the development of the skills shortage. While the skills shortage recently represented a significant business risk for more than half the companies, only 36 percent are currently worried about it. 

"Just as the first economic glimmers of hope appeared on the horizon, the war in the Middle East casts another shadow over the already battered German economy. A sustainable upswing seems far away," says Melnikov. Since Germany's influence on geopolitical risks is limited, it is all the more important for politics to solve the problems at home: "The economic problems in our country are homemade. In the first year of the Merz administration, important milestones were postponed. That is not enough to regain trust and trigger investments." 

Politics must dare bold reforms

The federal government now needs to quickly reduce energy and labor costs as well as taxes, streamline bureaucracy and reporting obligations, and accelerate procedures at all levels. "The first urgent measures should be bringing forward the already decided corporate tax reform to 2027, implementing the promised electricity tax reduction for all, and passing the Infrastructure Future Law," says the DIHK Chief Executive Officer. It is also important to swiftly reform income tax. "As announced in the coalition agreement, lower and middle incomes should be relieved. But please without counter-financing through higher taxes on high-income earners." Changes are also needed in social contributions: The federal government needs to decide to finance all non-insurance-related benefits entirely through the federal budget. Raising the contribution assessment ceiling is the wrong approach. It drives up additional labor costs and makes work more expensive in Germany. This weakens employment, burdens companies, and exacerbates structural competitive disadvantages. 

"Germany has been stuck in a structural crisis for years," says Melnikov. "The federal government finally needs to set the right priorities: relieve, cut, accelerate. Only with bold reforms will the economy return to a sustainable growth path with secure jobs, greater competitiveness, and growing prosperity. In the end, the state also benefits from increasing revenues." 

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