A significant downturn in investment plans across German industries signals deepening economic anxieties, according to the latest Ifo Institute’s business climate survey released this week. Investment expectations for the current year have plummeted to -9.2 points, a stark contrast to the 2.4 points registered in March, painting a concerning picture of stalled economic growth.
Lara Zarges, Ifo’s leading economist, directly attributed the decline to a confluence of factors, highlighting “the profound structural change and the lack of attractiveness of the German location” as major impediments to business confidence. The persistent uncertainty surrounding economic policy conditions is further exacerbating this reluctance to invest, she added. While expectations for 2026 remain marginally less pessimistic at -3.1 points, they nevertheless continue a worrying trend.
The industrial sector is bearing the brunt of this investment pullback. Expectations for the current year have collapsed to -17.3 points, a dramatic reversal from the +4.0 points seen earlier this year. Within this sector, the automotive industry is exhibiting particularly bleak sentiment, with expectations sliding from -11.4 to a worrying -36.7 points. The chemical industry is also significantly revising down its plans, dropping from +21.0 to -9.4 points. Even the traditionally robust machinery sector is experiencing a weakening outlook, falling from +0.9 to -15.3 points.
Looking ahead to 2026, the industrial sector anticipates continued, albeit reduced, investment cuts, despite a slightly improved balance of -6.9 points. The chemical industry remains deeply pessimistic at -15.8 points, while the automotive sector anticipates a stabilization, forecasting investment changes of just -1.3 points. Crucially, automotive manufacturers, historically willing to expand investments in software and research and development for the following year, are now signalling contractions – a worrying indication of shifting priorities and potential long-term consequences for innovation. They are, however, planning to marginally increase investment into equipment. The data processing equipment, electronic and optical products sectors stand out as the only industrial branches to project increased investment across all asset categories next year, driven largely by planned expansions in research and development (13.1 points).
The downturn extends beyond industry, impacting the retail sector – expectations for the current year have decreased from -10.1 to -13.1 points, with pessimism enduring for 2026 (-9.7 points). Service providers have also substantially scaled back their plans for the current year (from +4.9 to -3.1 points), although they maintain a more optimistic outlook for 2026 (1.1 points).
The widespread reduction in investment projections underscores a critical juncture for the German economy. It raises serious questions about the government’s ability to foster a stable and attractive environment for businesses and demands a thorough examination of the structural challenges hindering growth and innovation, especially in key sectors like automotive and chemicals. The revised investment trends signify more than just short-term fluctuations; they suggest a potential reshaping of Germany’s economic landscape, reliant on urgent and effective policy interventions.
