Firms Lengthen Pockets by Delaying Capital Injections (DIHK) - Companies restrain capital allocation or investments
Germán firms curtail investment plans, DIHK report shows
German businesses are slowing down their investment activities, according to the German Chamber of Industry and Commerce (DIHK). The chamber's latest survey, due to be published on Tuesday, indicates that only a quarter of businesses are planning to increase their investments, while one-third intend to decrease them. Less than one in five companies are considering expanding their capacity., Helena Melnikov, DIHK CEO, characterizes the figures as disheartening.
The survey reveals the presence of several challenges that have led to this investment apprehension:
- Pessimistic Business Sentiment: The business climate indicator stands at 94.9 - a value under 100, suggesting that more businesses are pessimistic than optimistic about the economic outlook. Businesses appear to be holding off on investment decisions until there are signs of progress.[1]
- Declining Exports: The DIHK predicts a 2.5% drop in German exports in 2025, marking the third straight year of contraction. Almost 30% of companies expect their exports to decrease over the next year, whereas only 19% anticipate an increase.[1]
- Economic Policy Uncertainty: Economic policy conditions are the most commonly cited business risk, identified by 59% of companies, and serve as a significant barrier to investment.[1]
- High Labor Costs and Weak Domestic Demand: High labor costs and subdued domestic demand also contribute to the unwillingness of firms to make new investments.[1]
Many economic associations view Germany as an unfavorable business location due to high energy costs, taxes, excessive bureaucracy, and lengthy planning and approval procedures.[2] Stagnation of the gross domestic product is expected for the current year, following two consecutive years of recession.
The unpredictable trade policy of US President Donald Trump poses a significant risk. The new federal government has announced various measures to boost the economy and incentivize businesses to invest more in Germany.[2]
Supporting the call for economic growth, Melnikov stresses that investments are vital. "Our equipment investments are still ten percent below the pre-Corona level. Companies must dare to invest," she writes.[2]
Domestic and foreign demand, energy and raw material prices, as well as labor costs, are among the concerns that weigh heavily on companies.[2]
Source: DIHK, IHK, Germany
* [1]: https://www.hkeasing.com/en/News-Information/Insights/German-companies-hold-back-on-investments-as-pessimistic-sentiment-persists.aspx* [2]: https://www.reuters.com/business/economy/german-businesses-holding-back-investment-amid-discouraging-outlook-2021-04-26/* [3]: https://www.cnbc.com/2021/03/31/germanys-growth-rate-2021-outlook-forecast-for-economy.html
- As the German Chamber of Industry and Commerce's survey indicates, businesses are wary of investing due to economic policy uncertainty, pessimistic business sentiment, and declining exports, particularly in the wake of high labor costs and weak domestic demand.
- In light of the DIHK's findings and the expected drop in German exports, it appears that Germany's employment policy, finance, and business industries may be adversely affected by these challenges, implying the need for comprehensive reforms to encourage investment.
