IW Survey: Economic Recovery Stalls - German Businesses Demand Reforms Amid Job Cuts, Sluggish Growth
Business associations urge fundamental reforms to tackle high energy prices, taxes, and rising social security contributions. The German economy faces a bleak outlook, with companies planning job cuts and reduced investment, and GDP growth expected to remain sluggish.
A recent report by Prof. Dr. Michael Hüther of the Cologne Institute for Economic Research paints a grim picture of the German economy. Business associations are indeed calling for structural reforms to address soaring energy prices, taxes, and social security contributions.
Industrial firms are planning further job cuts, with 41 percent expecting to reduce their workforce in 2026, compared to just 15 percent planning to hire more staff. This follows years of job losses in the sector. The situation is exacerbated by investment plans, with 33 percent of firms intending to reduce their investment budgets in 2025, while only 23 percent plan to increase them.
Companies' expectations for 2026 offer little hope of a turnaround. Only a quarter anticipate higher production or business activity, while nearly a third expect a decline. The situation is particularly challenging for industry, with negative production forecasts and disproportionate effects from trade conflicts and geopolitical upheavals.
The German government has introduced tax relief measures to encourage greater business investment, but GDP stagnated in the third quarter of 2024 and only minimal expansion is expected for the current year. The government forecasts GDP growth of 1.3 percent for 2025, driven primarily by state spending on infrastructure, climate initiatives, and defense.
The German economy faces another difficult year ahead, with no sign of a shift in business sentiment or a meaningful economic turnaround. Business associations and economists alike call for urgent action to address the challenges facing the German economy.
