A growing inability for German businesses to accurately forecast their future development signals deepening economic fragility and underscores concerns over the government’s policy direction, according to a recent analysis by the Ifo Institute. The latest findings, gathered as part of the Ifo Konjunkturumfrage, reveal that a staggering 77.8% of firms now find it difficult or rather difficult to predict their business trajectory – a significant increase from 75.4% in September and 72.2% in June. This metric, widely considered a key indicator of economic uncertainty, has reached its second-highest level since the onset of the COVID-19 pandemic.
The pervasive sense of unease isn’t isolated to specific sectors. Within the industrial sector, the situation is particularly acute, with nearly 90% of companies struggling to plan ahead. While the service sector exhibits marginally lower levels of uncertainty (around 70%), the challenges are impacting nearly every branch of the German economy, from retail (85.3% reporting difficulty) to construction (72.7%).
“Companies are confronting a multitude of geopolitical risks” stated Klaus Wohlrabe, Head of Ifo Surveys, highlighting a critical element fueling the anxiety. Crucially, he points a finger at the current political climate, accusing policymakers of failing to provide the clarity and stability required for long-term planning. The highly anticipated “autumn of reforms” has thus far lacked concrete direction, leaving businesses adrift.
The elevated uncertainty levels represent a stark departure from pre-pandemic norms. Historical lows, achieved before 2020, paint a contrasting picture: only 74.1% of industrial companies, 46.2% in the service sector, 67.5% in retail and 32.6% in construction experienced similar forecasting difficulties.
While the government is preparing an infrastructure package, the delayed concrete plans have exacerbated the existing anxieties. Its potential to alleviate some of the uncertainty in the construction sector remains contingent on swift and decisive implementation. The concerning trend underscores a deeper issue: the inability of policymakers to provide the predictable environment crucial for sustaining economic confidence and future investment within Germany.