Germany's 2026 economic forecast dims as businesses cut costs and jobs
German Economy Starts 2026 on Shaky Ground Businesses continue to grapple with high costs, weak demand, and structural risks.
The DIHK Economic Survey at the Start of 2026 paints a still-tense picture of Germany's economic situation. Despite slight improvements, growth momentum remains weak. High domestic costs, geopolitical uncertainties, and sluggish consumer demand are weighing on companies across sectors.
The survey is based on a nationwide poll of around 26,000 businesses from all industries and regions, with responses collected and aggregated by Germany's Chambers of Commerce (IHKs). It regularly provides insights into current business conditions, expectations, and investment and hiring plans.
This latest survey was conducted before the outbreak of the Iran War, meaning its economic repercussions are not yet factored in.
Key Survey Findings
At the beginning of 2026, economic growth remains anemic. The DIHK forecasts expansion of just around one percentâlargely driven by statistical effects rather than sustainable momentum.
Business conditions have improved only marginally. Just 16 percent of companies expect better performance over the next twelve months, while 25 percent anticipate a decline.
The most frequently cited risks are labor costs (59 percent), domestic demand (58 percent), and economic policy conditions (58 percent). These are followed by energy and raw material prices (48 percent), foreign demand (44 percent), and skilled labor shortages (40 percent).
Export expectations have seen a slight uptick but remain far from a reliable growth driver. Twenty-two percent of firms foresee declining exports, while an equal share expects an increase.
Investment activity continues to focus on replacement (66 percent) and efficiency measures (34 percent). Expansion projects (19 percent) and innovation-driven initiatives (29 percent) are rare, reflecting structural uncertainty and high costs. Environmental protection (17 percent) also ranks low as an investment priority, suggesting insufficient incentives. Only 23 percent of businesses plan to increase budgets, while 33 percent intend to cut spending.
Sector Trends
The industrial sector remains under significant pressure. High energy and labor costs, combined with weak demand, are undermining production and competitiveness.
At the same time, domestic investment is stalling. Some companies are shifting focus abroad to capitalize on more favorable conditions. In construction, high financing costs, material prices, and sluggish residential demand are dampening growth.
Public infrastructure projects are providing localized stability but can only partially offset the decline in private construction. Retail is particularly hard hit by weak consumer spending, with households' reluctance to spend directly impacting sales and planning certainty.
Employment and Labor Market
Labor market trends mirror the sluggish economy. Hiring momentum is slowing, and adjustments are already visible in several sectors. Twelve percent of companies plan to expand their workforce, while 23 percent expect reductions.
Many businesses are adopting a cautious approach. New hires are being carefully evaluated, while efficiency gains and automation are taking priority. The DIHK projects a decline of 50,000 in the number of employed persons.
"International competition is intensifying," warned Helena Melnikow, DIHK's chief executive, in a February 17 press release. The association is calling for reforms: "Cut bureaucracy, reduce labor and energy costs, and ensure reliable regulations."
A Snapshot, Not a Full Analysis
The DIHK's survey reflects primarily the perspective of businesses. While it offers a valuable sentiment check, it does not replace comprehensive macroeconomic analysis. The emphasis on cost burdensâparticularly labor costsâseeks short-term relief but overlooks the externalization of costs and the long-term impact on domestic demand.
Calls for cutting red tape must also be made more concrete and weighed more critically. Reducing bureaucracy in the wrong areas can lead to damage and higher costs. Moreover, slashing administrative capacity often undermines the very demand for reliable rulesâafter all, such rules require people to implement and enforce them.
