Sentiment in the German economy is darkening again after a surprising lift earlier this year. This trend is revealed in a new economic survey published by the Institute of the German Economy (IW) on Tuesday. The survey indicates that nearly a third of private companies plan to reduce staff in 2027, up from 29 percent in the spring. Only about one in six businesses intends to increase its workforce next year. Furthermore, 80 percent of companies anticipate producing less, or about the same amount, in 2027 compared to the current year.
The construction industry is particularly affected, suffering double blows from the conflict in Iran. This dispute has triggered a major energy crisis, placing heavy pressure on energy-intensive sectors. This energy crisis has simultaneously fueled inflation and subsequent rises in interest rates. Higher interest rates increase the cost of loans that construction customers rely on. As a result, while roughly 23 percent of construction firms predicted lower output next year a year ago, this figure has now reached about 26 percent. Despite special funds and a construction boom, the sector’s added value remains more than 20 percent below its 2019 level.
The short upward trend in the industrial sector has not solidified. Forty-seven percent of industry firms report being in a worse position than they were a year ago, compared to nearly 43 percent in the spring. Only about 19 percent plan to increase their investments, while nearly 30 percent of industrial companies foretell staff reductions. Happily, nearly 23 percent expect to increase production in 2027, although 28 percent of industrial companies anticipate declines in output. Overall, the gross added value of the industry continues to lag behind the 2019 level.
“The economic tailwind is fading again next year,” stated Michael Grömling, IW’s Chief Economist. He remarked that private businesses in the German economy are entering the longest period of negative expectations since 2005, affecting production, employment, and investment. The expert concluded that Germany should not rely on external improvements, emphasizing that implementing the targeted reforms is now even more critical.
