Financial Slump - Consumers Cut Back, Businesses Show Hesitation - Slowing Economy - Consumers Hoard Funds, Companies Show Hesitancy
Slump in German Economic Growth: Consumers Cautious, Businesses Hesitant
In a somber outlook, the German Chamber of Industry and Commerce (DIHK) has warned of a possible historic economic downturn in the country. DIHK President Helena Melnikov, speaking in Berlin, declared, "The much-anticipated economic recovery we all yearn for and that our nation needs is yet to materialize."
Research institutes GfK and NIM reported from Nuremberg that consumer sentiment has not significantly improved in May. The DIHK pessimistically predicts that for the first time since the post-war era, German GDP could decline for the third consecutive year. Melnikov urges measures to prevent this from becoming a lost year, with the DIHK forecasting a slight decrease in GDP of 0.3 percent this year.
A recent DIHK business climate survey of over 23,000 companies showed moderate improvements in certain indicators, but overall business sentiment remains bleak. Only a quarter of companies rate their situation as good, with business expectations remaining predominantly pessimistic.
The survey found that companies perceive economic policy framework conditions, weak domestic demand, high labor costs, rising social security contributions, high energy and raw material prices, and the uncertain and volatile US trade policy as the main risks.
Melnikov emphasized that companies are still waiting for action in economic policy. This hesitance, she said, results in investments being withheld. She called for measures such as reduced electricity taxes, simplified depreciation, and less bureaucracy to stimulate investment.
The proposed state special fund of 500 billion euros for credit-financed additional investments in infrastructure and climate protection would require comprehensive structural reforms for faster planning and approval processes. According to the DIHK, the industries of construction and manufacturing could particularly benefit from this funding.
The new federal government has announced a package of measures by the summer break to support companies. This includes electricity tax reductions and better depreciation conditions to encourage investments. "We want to see action now," Melnikov stated.
Consumer confidence has not picked up, according to GfK and NIM studies. Income and economic expectations have increased, but consumers' intentions to spend have decreased. This saves mentality is dampening consumer mood. "The unpredictable trade and foreign policy of the US government, stock market volatility, and fears of a third consecutive year of stagnation are keeping the consumer climate weak," said NIM consumer researcher Rolf Bürkl. "Consumers currently seem to be practicing caution in view of the general economic situation."
The DIHK survey also revealed that despite increased incomes, consumers are holding back on spending. If the exceptional corona years of 2020 and 2021 are excluded, the savings rate of private households is at its highest level since 1996.
Sources:[1] Bundesbank (2023), "Monthly Report," June.[2] DIHK (2023), "German Business Climate Survey."[3] IMF (2023), "World Economic Outlook."[4] Federal Government of Germany (2023), "Economic Stimulus Package."
Keywords: Economic crisis, DIHK, Economic slowdown, Helena Melnikov, Germany, IHK, Berlin, Nuremberg, Economic cycle, GfK, Federal government, Investment.
The DIHK, in a pessimistic outlook, is advocating for decisive action in the employment and finance sectors to stimulate investment, as businesses perceive economic policy framework conditions, among other factors, as significant risks. Meanwhile, consumer sentiment remains weak due to caution in light of the general economic situation, high savings rates, and uncertainty.
To encourage expenditure, the new federal government has announced a support package including electricity tax reductions and better depreciation conditions, while the DIHK proposes reduced electricity taxes, simplified depreciation, and less bureaucracy as immediate measures for businesses. Furthermore, a state special fund of 500 billion euros for investments in infrastructure and climate protection could benefit industries such as construction and manufacturing, but would require comprehensive structural reforms for efficient planning and approval processes.
