German economy expected to stagnate this year, DIHK says

By Thomson Reuters May 23, 2024 | 3:48 AM

BERLIN (Reuters) – Germany’s long-awaited economic recovery is not materialising and the euro zone’s largest economy will only stagnate this year, the German chambers of commerce and industry (DIHK) said on Thursday.

Nevertheless, the forecast was more optimistic than at the start of the year, when the DIHK expected a 0.5% contraction.

The DIHK expects private consumption to support the economy this year, growing by 1.0%, as inflation eases to 2.3% from 5.9% in 2023.

The DIHK survey, conducted among 24,000 companies from all sectors and regions, shows that the hope of recent months that good foreign business or a recovery in domestic demand could act as a driver for domestic companies has not materialised.

“The current situation of companies is poor, and even bad in industry,” said DIHK Managing Director Martin Wansleben at the presentation of the survey. “Expectations do not show a strong upward trend.”

Of the companies surveyed, 28% reported a good current situation in the spring, while 23% reported a bad one.

“It is particularly worrying that the situation in industry has deteriorated since the beginning of the year and thus remains negative,” Wansleben said in Berlin.

The results are worse in the industrial sector, where pessimism predominates. The survey shows that 23% of the companies reported a good situation and 28% reported a bad one.

However, business expectations are brightening. Only 26% of companies now have negative expectations, down from 35% in the previous survey.

The DIHK sentiment index currently shows a below-average value of 97.2. “That’s a little better than at the beginning of the year. But there are still more pessimists than optimists,” said Wansleben.

Export expectations remain subdued. Of the companies surveyed 26% expect exports to fall in the next twelve months, while 21% expect them to increase. The DIHK also predicts an stagnation in exports this year. In 2023, exports fell by 2.2%.

Companies’ willingness to invest remains weak and the level of investment before the coronavirus crisis hasn’t been reached yet, said Wansleben.

In the survey, 24% of the companies said they expect higher investments, but 31% said they expected them to decrease.

The companies surveyed currently identify weak domestic demand as the greatest business risk, mentioned by 55% of the companies.

This is followed by high energy and raw material costs as well as a shortage of skilled workers, the survey showed.

(Reporting by Maria Martinez, Editing by Rachel More and Toby Chopra)