A renewed sense of economic pessimism is gripping Germany, according to a recent survey by the Institute for German Economy (IW), signaling a potential crisis for the nation’s job market and investment landscape. Following a brief respite in early 2025, the IW’s findings, released Sunday, indicate a significant downturn in business sentiment, raising serious questions about the efficacy of government policy.
The survey reveals a concerning trend: a staggering 36% of German companies are planning workforce reductions for the coming year, dwarfing the 18% anticipating job creation. This contraction is particularly acute within the industrial sector, where 41% of firms intend to cut jobs, with only roughly one in seven predicting an expansion of their workforce. The figures underscore a growing unease among businesses navigating an increasingly volatile global environment.
Investment, a cornerstone of Germany’s economic strength, is also facing a precipitous decline. Only 23% of companies intend to increase investment in 2026, a stark contrast to the 33% planning to scale back. This development exacerbates an ongoing investment crisis, marking the longest period of negative investment expectations in the IW’s surveys – spanning over five half-year periods. This sustained lack of confidence threatens long-term growth and competitiveness.
Regional disparities highlight the depth of the economic unease. While optimism prevails in the northern and Bavarian regions, anticipating production increases, the rest of the nation is mired in negative sentiment, particularly in the northeastern states where nearly half of surveyed companies are bracing for declining business.
“Instead of a renewed industrial revolution, we are seeing job cuts. Companies are suffering under immense geopolitical pressures” commented Michael Grömling, IW’s leading Economist. He further emphasized that these external pressures are compounded by self-inflicted wounds: escalating energy costs, burdensome social security contributions and excessive bureaucracy. Grömling’s critique strongly implies that the government’s special programs, while substantial in size, are unlikely to deliver the necessary impact without broader structural reforms addressing these costly and restrictive domestic factors. The situation demands a reassessment of Germany’s economic strategy and a rapid implementation of policies to revitalize industry and restore business confidence, or risk a protracted period of economic stagnation and decline.
