A pervasive sense of fragility continues to grip the German economy, with a new survey revealing widespread expectations of job losses and muted investment, despite a tentative improvement in overall business outlook. Conducted by the Institute of the German Economy (IW) and released Monday, the poll of 46 industry associations paints a concerning picture for the labor market, projecting potential job cuts across key sectors well into 2026.
The survey indicates that 22 of the associations anticipate a reduction in workforce numbers, a stark contrast to just nine predicting workforce expansion within their respective industries. A further 15 expect employment levels to remain stagnant. This gloomy forecast reflects long-standing structural challenges confronting the German economy, primarily the escalating global tide of protectionism and a sustained weakness in exports. Elevated operating costs are further eroding the nation’s price competitiveness, particularly impacting traditionally vital industries. The automotive, paper and textile sectors are specifically cited as bracing for production declines.
While the survey does acknowledge a slight brightening of the overall business climate compared to 2025 – with 19 associations projecting higher production levels next year versus nine anticipating a decrease – this cautiously optimistic sentiment is tempered by a deeply entrenched hesitancy regarding investment. Only 11 industry associations foresee increasing investment, while 14 expect a reduction. A significant 21 associations predict stagnant investment levels, frequently at alarmingly low baselines.
The limited areas of growth are conspicuously linked to government intervention and strategic shifts. Sectors benefiting from special funds or the recent surge in defense spending, such as aerospace, shipbuilding and segments of the construction industry, are demonstrating relatively stronger performance. The service sector has also reported improved conditions compared to the previous year.
“Those hoping for a swift and comprehensive resolution to the economic crisis will be disappointed in 2026” stated IW Director Michael Hüther, underlining the precarious nature of the recovery. He cautioned that the visible upticks are often masking a lack of genuine economic dynamism, describing the current stabilization as occurring “at a lower level”. Hüther’s assessment implicitly places considerable pressure on policymakers, emphasizing that substantial and decisive action is urgently required to reignite robust growth and address the fundamental structural weaknesses plaguing the German economy. The data fuels a broader debate on the effectiveness of current economic policies and the potential need for more aggressive interventions to counteract global headwinds and foster sustainable long-term prosperity.