German Economy Headed for Third Consecutive Year of Contraction: DIHK

The German economy is expected to contract by 0.5% this year, marking a third consecutive year of shrinkage and the longest period of economic weakness in the country's post-war history, according to a report released Thursday by the German Chamber of Commerce and Industry (DIHK).

"This is a turning point and emphasizes the acute need for action," said Helena Melnikov, managing director of the DIHK, as reported by Reuters. The report highlights that a record 60% of companies view the economic policy framework as their most significant business risk.

The DIHK's findings, based on a survey of 23,000 companies across all sectors and regions, underscore the mounting challenges facing the German economy. The report attributes the sustained contraction to a confluence of factors, including heightened international competition, elevated energy costs, rising interest rates, and an overall uncertain economic outlook.

The survey revealed that over the next year, 31% of companies anticipate their business to worsen, while only 14% expect an improvement. The outlook for investment is similarly bleak, with just 22% of companies in the industrial sector planning to increase investment, while nearly 40% are planning cutbacks.

"If this trend continues, Germany faces the threat of further deindustrialization," Melnikov warned.

The report also highlights the subdued outlook for exports. Over the next 12 months, 28% of companies anticipate a decline in exports, while only 20% expect an increase in sales to other countries.

"Declining competitiveness and increasing protectionism are threatening the export-orientated German industry, which has always been a driver of economic growth," said Volker Treier, head of foreign trade at the DIHK.