November 20, 2023

Germany needs an opportunity-oriented economic policy

“51 percent see business risks in the economic policy framework. What is particularly alarming is that we have measured this value for the first time in the industry as well,” said DIHK Managing Director Martin Wansleben during the presentation of the survey, which is based on feedback from 24,000 companies from nearly all sectors and regions. Afterward, only 13 percent of companies expect an improvement in their business over the next twelve months, while more than a third (35 percent) anticipate a decline.

“So far, we see no signs of a self-sustaining upswing – on the contrary, companies have adjusted their important investment plans and employment intentions downward, each into the negative”, Wansleben said. “Given these overall bleak prospects, we expect a 0.5 percent decline in economic performance this year. For the next year, we only anticipate stagnation with a zero growth rate. In addition to poor economic conditions, there are also significant structural and long-term challenges, including significant geopolitical risks, demographic changes, technological transformations, climate change, and energy policy.

Just press the reset button

“Despite these figures and the pessimistic sentiment, we want to convey an important message: Germany has the opportunity to do many things better right now. Companies are eager for the government to press the reset button and utilize the existing potential. We need to become more productive and innovative,” Wansleben emphasized. “This also requires action from businesses, many of which have already adjusted their processes. They need support from the government and fewer bureaucratic regulations.”

Individual examples show: It’s possible

A detailed and precise examination of the German economy is worthwhile for this purpose. “Even in this difficult situation, there is good news: In specific industries and companies, innovation is still a priority. Some sectors, such as the pharmaceutical industry, energy providers, construction and civil engineering, and IT service providers, also report positive signals regarding their businesses,” Wansleben reported. “These examples show us that it is possible to build on this momentum.”

Currently, more companies view their current business situation positively (30 percent) than negatively (21 percent). However, as Wansleben points out, “entrepreneurs and companies are looking apprehensively toward the future.” Negative expectations currently outweigh positive ones in almost all sectors for the next twelve months. The DIHK business expectations index has dropped from -5 to -22 points.

Private investments are indispensable

The industry, in particular, is showing restraint and significantly reducing its investment intentions. Only 24 percent of industrial companies plan to expand their investments in Germany, while 36 percent are more inclined to reduce them. Wansleben explains, “For companies, long-term perspective is crucial in making investment decisions. They need reliability for at least ten years, if not more. This is a critically important factor in advancing both the economy and transformation goals. We will never achieve this solely through public investments and support programs because 90 percent of our nation’s investments come from private sources.”

Companies identify 3.1 risks instead of the previous 2.4

Overall, the risks and uncertainties faced by companies are on the rise. Wansleben noted, “On average, companies now identify 3.1 business risks. Before the pandemic, the average was 2.4.” More than half of them cite energy and raw material prices (currently 61 percent, down from 65 percent in the early summer), labor shortages (58 percent, down from 62 percent), domestic demand (53 percent, up from 46 percent), and for the first time, economic policy framework conditions (51 percent, up from 43 percent) as the biggest business risks.

Stop bureaucracy and increase speed

Regarding economic policy framework conditions, there are nearly 6,000 free-text responses from companies. “Bureaucracy dominates as an obstacle,” Wansleben said. “But this is not just a feeling. The number of regulations, rules, laws, and reporting requirements for our economy has steadily increased, especially in crisis years. This applies to the EU level as well as at the federal, state, and even local levels. We urgently need to put a stop to bureaucracy and increase the pace, especially when considering global changes. We need to become significantly more agile.”

In this regard, “Bureaucracy Relief Act IV and other initiatives are important steps,” according to the DIHK Managing Director. However, the business community expects the Germany Pact to offer relief that not only focuses on public infrastructure projects but also facilitates private sector investments.

International agreements support new supply chains

The geopolitical situation is already forcing companies to diversify their markets and supply chains more broadly. This risk reduction results in significantly higher costs. Furthermore, the global economy is growing slowly and providing minimal stimulus. “This affects Germany, an exporting nation, more than others, and clear political signals are all the more crucial here,” Wansleben emphasizes. “We need strong trade agreements as soon as possible to significantly improve market access in the Indo-Pacific and Latin America, for example.”

For many years, companies have shown remarkably robust employment intentions, not least due to labor and skills shortages. Currently, companies are significantly more cautious in this regard.

Source: DIHK
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