June 12, 2024
“The current situation of companies is weak, particularly poor in the industry. Expectations do not show a strong upward movement,” said DIHK Chief Executive Martin Wansleben during the presentation of the survey on May 23 in Berlin.
“The hope of recent months that a strong foreign business or a reviving domestic demand could act as a driver for domestic companies has not been confirmed. On the contrary: A weak domestic economy and solid structural challenges continue to hold the economy in check.” The newly developed DIHK sentiment index shows a below-average value of 97.2. “This is slightly better than at the beginning of the year. However, there are still more pessimists than optimists,” said Wansleben.
Business situation and expectations are not improving
Only 28 percent of companies now rate their business situation as positive (down from 29 percent at the beginning of the year), while 23 percent (up from 22 percent) consider it to be poor. The balance of the assessment between positive and negative views continues its downward trend, decreasing from 7 to now 5 points.
“The negative business expectations from the past months are now being confirmed in the present. t. This downturn is almost pervasive throughout the entire economy,” explained Wansleben. “Of particular concern is that the situation in the industry has deteriorated compared to the beginning of the year and remains negative. The erosion of the industry continues.”
In the industry, more companies now assess their situation negatively (28 percent) than positively (23 percent). “This is noteworthy,” said Wansleben. “Because typically, the industry is our most important economic driver due to its internationally diverse customer base and its significance for investment activity in Germany.”
However, there are some improvements in business expectations compared to the beginning of the year. Especially the proportion of companies with negative expectations has decreased from over a third to a quarter (26 percent compared to previously 35 percent). Taken by itself, this is a good sign. Nevertheless, pessimistic assessments still prevail. However, the percentage of companies with positive expectations remains low at 16 percent.
The balance between better and worse responses has thus increased from minus 21 to minus 10 points compared to the previous survey. “We can see from the numbers that the economy is not collapsing. However, a growth spurt is not yet apparent.” Although the global economy is growing moderately, export expectations have only slightly improved, from minus 7 to minus 5 points. “Currently, there are no positive impulses coming from exports. Based on the results, the DIHK predicts at best stagnation for this year,” said Wansleben. Little movement is also expected in the job market.
Risks remain high
The number of business risks identified by companies remains consistently high. Due to the weak domestic economy, every second company sees a risk in domestic demand (55 percent). “But structural risks also continue to remain at a high level,” said the DIHK’s managing director. More than half of the businesses are concerned about the still high energy and raw material prices, the ongoing issue of skilled labor shortage, and labor costs. In addition, uncertain economic policy conditions add to the pressure on the competitiveness of many companies and the overall location,” said Wansleben.
Investment plans remain weak
Despite slight improvement, the investment plans of companies remain restrictive. Only a quarter (24 percent) of companies plan to increase investments, while three out of ten (31 percent) need to cut back. Only during the financial crisis and at the beginning of the 2000s (autumn 2003) was the proportion of companies willing to invest in capacity expansion even lower. “These are alarming signs of a gradual deindustrialization,” warned Wansleben. “If we do not act promptly, Germany will lose its industrial base. And with it, the foundation of our prosperity.” The DIHK is concerned that overall investments still remain below the level of 2019.
Companies need a clear signal for a fresh start
“Especially because the international situation is so uncertain due to the multitude of crises, companies need clear signals for a fresh start, at least from Berlin and Brussels. These signals should point towards entrepreneurial freedom – bringing more innovation and less bureaucracy,” said the DIHK’s Chief Executive. “This includes the measures planned in the pact between the federal government and the states to accelerate the expansion of broadband, industrial, and wind power plants. This must finally be fully implemented by the government coalition.”
According to the DIHK, tax relief is also necessary, as the tax burden on companies is very high compared internationally. Wansleben: “Quick and effective steps would be sensible: The degressive – thus accelerated – depreciation included in the Growth Opportunities Act should be possible beyond the turn of the year. Additionally, we need the originally planned investment premium. And the immediate write-off of so-called low-value assets should be possible up to a value of 5,000 euros. Not just up to 800 euros. Also, the solidarity surcharge, which is currently predominantly paid by companies, should be completely abolished.”
Source: DIHK
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