Structural problems and the consequences of the war in the Middle East are hitting the German economy with full force. "We are in a double crisis, declared Helena Melnikov, Managing Director of the German Chamber of Commerce and Industry (DIHK), on Tuesday.
According to the DIHK's latest business climate survey, companies currently rate their situation as poorly as they last did during the COVID-19 pandemic. The Ifo Institute has also reported a decline in export expectations among German businesses.
For the survey, approximately 23,000 companies from all sectors and regions were polled between the end of March and the beginning of May. Of those, 26 percent described their current business situation as bad, while only 23 percent rated it as good. The resulting balance of positive and negative responses dropped by four points compared to the previous survey at the start of the year, falling to minus three points, the lowest reading since the coronavirus crisis.
A third of respondents also expect their business to deteriorate over the next twelve months, eight percentage points more than at the beginning of the year. Only 13 percent currently have an optimistic outlook. The overall DIHK sentiment index plunged from 95.9 points at the start of the year to just 88.1 points.
The tentatively improving mood in the German economy at the start of the year has slumped once again, the DIHK concluded. The reason is the Iran war: "Just as the first glimmers of economic hope appeared on the horizon, the war in the Middle East has cast a fresh shadow over Germany's already weakened economy", Melnikov explained.
Many businesses are also at breaking point after years of recession and stagnation. Unlike in previous crises, they have almost no reserves left to fall back on.
Currently, 70 percent of companies cite energy and raw material prices as their biggest business risk, up sharply from 48 percent at the start of the year, before the Iran war began. At the same time, the risks already identified at the beginning of the year have not gone away: rising labour costs (57 percent), weak domestic demand (56 percent), and uncertain economic conditions (58 percent).
The strain is increasingly visible in the labour market. Nearly a quarter of the companies surveyed plan to cut staff, while only one in ten intends to hire, also the lowest figure since the COVID pandemic. The skilled labour shortage, meanwhile, is becoming less of a concern. While it was a major business risk for more than half of all companies just recently, that share has dropped to 36 percent.
Based on these poor results, the DIHK lowered its growth forecast for 2026 from 1.0 percent to just 0.3 percent. Melnikov stressed that it is now all the more important for policymakers to address the problems within Germany, given the country's limited influence over geopolitical risks. The federal government must act quickly to reduce energy and labour costs as well as taxes, cut red tape and reporting requirements, and speed up administrative processes at all levels.
German exporters are also under pressure due to the crisis in the Gulf region, particularly those in energy-intensive industries. Accordingly, companies' expectations for their export performance are declining. The Munich-based Ifo Institute reported that the export expectations index fell from minus 1.2 points in April to minus 5.5 points in May. While export business recovered in the first quarter, the outlook remains difficult.
"Geopolitical uncertainty remains high", said Ifo business cycle chief Timo Wollmershäuser. In the export-oriented automotive industry, declining exports are now expected after four "very optimistic months." The metals industry is also likely to see foreign revenues fall. The mood is somewhat better in the electrical sector and among furniture manufacturers.
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