Economic researchers see the German economy in a protracted crisis like no other in decades.
“For years we have been sleepwalking from one economic shock to the next, with glimmers of hope disappearing in the meantime,” said Michael Grömling from the German Economic Institute (IW) of the German Press Agency in Cologne after presenting an economic survey of 1,000 companies. “Bild” had previously reported on this.
The crisis began in 2020 with the corona pandemic and its massive consequences for companies. When it was over, the economic forecasts for 2022 were positive, Grömling continued. But then the next shock came with the war in Ukraine, including high energy prices. This is now repeating itself: the positive forecasts for 2026 will now be destroyed by the Iran war.
Deep worry lines among company managers
The IW’s economic survey of around 1,000 companies from the industrial, service and construction sectors is sobering. 43 percent of companies reported that their business was doing worse than a year ago. Only 14 percent reported better business. Pessimism prevails – significantly more companies expect worse business than better business for the rest of the year. The survey was conducted in March, after the start of the Iran War.
It is also worth considering that 40 percent of companies want to reduce their investments. The survey also showed that many companies are making red flags when it comes to personnel: in industry, according to the survey, 37 percent of the companies surveyed are planning with fewer staff and only 14 percent with more. For service providers, the ratio is less clear at 28 percent to 22 percent.
Last protracted crisis led to far-reaching reforms
“The series of massive economic shocks in recent years is unique,” says economic expert Grömling. The last time there was a similarly long crisis was in the period 2000 to 2005, which began with the crash of stock prices (dot-com bubble) and the doubling of the price of oil to around $30 per barrel – at that time, China’s economy was gaining momentum and needed much more oil than before, which caused prices on the world markets to rise. In 2001, the terrorist attacks of September 11th were a further setback for the economy.
The then SPD-led federal government overcame the weakness of the economy and the increase in unemployment through structural reforms (Agenda 2010). “Now, as then, we need the labor market to be more flexible so that more people can earn a living,” says Grömling.
In addition, bureaucratic costs would have to be reduced: German companies employ a lot of people who are only responsible for complying with complex government regulations, and expensive legal advice is also necessary. Such expenses are ballast for a company’s productivity. “The bureaucracy is high, so profits fall and prices for customers rise – that’s bad for Germany’s competitiveness.”