Struggling economy - consumers tightening belts, businesses in doubt - Sluggish Economy - Consumers Hoard, Businesses Showed Hesitation
Economic Recession Looming - Consumers Saving, Companies Hesitant to Invest
In Germany, the German Chamber of Industry and Commerce (DIHK) cautions of a potential historical economic downturn. Helena Melnikov, the DIHK's CEO, expressed her concerns in Berlin, stating, "The economic recovery we all aspire for and that our nation requires is still nowhere in sight."
Consumer research institutes GfK and NIM, based in Nuremberg, reported that the consumer climate did not significantly improve in May. Melnikov's predictions indicate a possibility of German economic output decreasing for a third consecutive year, a first since post-war Germany. To prevent this potentially grim outcome, Melnikov urged action to avoid making 2023 a "lost year."
Despite a slight improvement in some individual indicators from a DIHK survey encompassing over 23,000 companies, overall business sentiment remains poor, with only a quarter reporting a favorable situation.
Companies cite economic policy framework conditions, weak domestic demand, high labor costs, escalating social security contributions, high energy and raw material prices, and the unpredictable US trade policy as the most significant risks.
Melnikov emphasized that companies are still holding back investments, necessitating urgent action in economic policy. She advocated for reducing the electricity tax to the European minimum level, simplifying depreciation, and decreasing bureaucracy.
The government has announced a comprehensive package of measures by the summer break to alleviate companies, which includes reducing the electricity tax and improving depreciation conditions to stimulate investment. Melnikov underscored the urgency of pursuing action.
Although economic and income expectations have increased, consumer demand has not followed suit. Instead, consumers are opting to save more, a move that is dampening overall consumer sentiment. Factors contributing to this include the unpredictable US trade policies, stock market fluctuations, and apprehensions about a third successive year of stagnation.
privately-held households' savings rate is at an all-time high since 1996, excluding the exceptional corona years 2020/2021.
The German government has earmarked €110 billion in public investments for 2025, aiming to increase investments by almost 50% compared to the previous year. This includes a €500-billion package targeting defense and infrastructure to bolster the economy and safeguard jobs. Comprehensive structural reforms, such as faster planning and approval procedures, are necessary for this fund to have tangible effects, particularly in sectors like industry and construction.
The planned measures by the new federal government, scheduled for unveiling during the summer break, aim to relieve companies. These include reductions in the electricity tax and improved depreciation conditions to incentivize investment.
- Despite the high savings rate among privately-held households, the government aims to reduce the electricity tax and improve depreciation conditions in their upcoming economic policy, hoping to stimulate investments and counteract the stagnation in consumer demand.
- As Melnikov advocates for urgent action in the employment policy, she emphasizes the need for reducing labor costs, simplifying bureaucracy, and addressing unpredictable trade policies, to encourage companies to invest and prevent a potential third consecutive year of economic output decrease.
