Companies are withholding their financial commitments, according to DIHK. - Investment delays by corporations, according to DIHK
German Companies Curbed on Investments Due to Economic Uncertainty, DIHK Reports
According to a recent letter from Helena Melnikov, the CEO of the German Chamber of Industry and Commerce (DIHK), German businesses are holding back on investments. Only a quarter of companies are planning increased investments, while a third intend to reduce them, the letter states.
The DIHK survey reveals that less than one-fifth of companies can envision capacity expansion. Melnikov described these figures as disheartening, citing results from a new business survey to be released on Tuesday.
Several factors contribute to the economic uncertainty faced by German companies, making investments a risky proposition. High energy costs and taxes, excessive bureaucracy, and protracted planning and approval procedures are identified as significant location disadvantages in Germany. The stagnation of the gross domestic product (GDP) is expected for the current year, following two consecutive years of recession.
US President Donald Trump's unpredictable trade policy poses a significant risk. The new federal government has announced several measures to boost the economy and encourage companies to invest more in Germany.
To stimulate economic growth, investments are necessary, according to Melnikov. "Our equipment investments are still ten percent below the pre-Corona level. Companies must dare and trust to put money into their hands," she said in the letter.
Many companies are concerned about both domestic and foreign demand, as well as energy and raw material prices, and labor costs. These factors serve as considerable investment barriers.
The DIHK's World Business Outlook for Spring 2025 indicates that investment intentions are at their lowest level since the survey began. This cautious approach by German companies worldwide is driven by global economic challenges and uncertainties affecting investment decisions.
German exports are projected to decline by 2.5% in 2025, marking the third consecutive year of contraction. This shrinkage is partly due to external factors like tariffs and global demand fluctuations. Companies may be reluctant to invest in production or expansion when export markets are contracting.
The German economy is forecasted to contract by 0.3% in 2025, the third consecutive year of decline, creating a risky environment for investment. Regional investment trends have shown changes, with Canadian and Mexican investment plans experiencing significant shifts. In Canada, for instance, only 10% of German companies plan to increase investments, while 38% plan to reduce them. In Mexico, investment intentions have halved.
In summary, German companies' reluctance to invest is driven by economic uncertainties, declining export prospects, and the risk of recession. The impact of trade policies and tariffs, global competition, and market conditions also influence investment strategies. The DIHK's survey highlights concerns about domestic and foreign demand, energy and raw material prices, and labor costs as significant investment barriers.
- In light of the economic uncertainty, German companies are reviewing their community and employment policies, as these costs are among the significant location disadvantages identified in Germany.
- Despite the government's efforts to boost the economy and encourage investments through employment policies, the finance sector finds it challenging to envision capacity expansion due to the cautious approach towards investments.
