German businesses are dramatically curtailing investment plans, according to the latest Ifo Institute’s economic survey, signaling a deepening crisis of confidence in the nation’s economic trajectory. The survey, released Wednesday, paints a concerning picture of waning business sentiment and raises critical questions about the government’s ability to foster a favorable investment climate.
Investment expectations for the current year have plummeted to -9.2 points in November, a significant drop from 2.4 points in March. Lara Zarges, Ifo economic expert, attributed this stark downturn to “a profound structural transformation and the lack of attractiveness of the German location” effectively blaming both long-term systemic issues and perceived shortcomings in Germany’s competitiveness. The persistent uncertainty surrounding economic policy frameworks is exacerbating the reluctance to invest, further dampening prospects for growth. While expectations for the coming year remain negative at -3.1 points, they are marginally less pessimistic than the outlook for 2024.
The industrial sector is bearing the brunt of the slowdown, with investment expectations for the current year experiencing the most significant decline, falling to -17.3 points from +4.0 points in March. Within the sector, the automotive industry is particularly distressed, showing a dramatic drop in expectations from -11.4 to -36.7 points. This casts a harsh light on the challenges facing Germany’s flagship automotive sector, traditionally a bedrock of the national economy. Likewise, the chemical industry is sharply revising its plans, plummeting from +21.0 points to -9.4 points. Even the traditionally robust machinery sector is experiencing a deterioration in investment sentiment, moving from +0.9 points in March to -15.3 points in November.
While the industrial sector plans continued investment reductions for 2026, the sentiment remains negative at -6.9 points. Notably, chemical companies are displaying particularly dim prospects (-15.8 points), indicating potential struggles within a key German industry. In a surprising shift, the automotive sector anticipates “not” further decreasing investment – a slight reprieve – at -1.3 points. However, this is juxtaposed by a worrying trend: after years of consistent expansion in software and research and development spending, automotive manufacturers are now planning to scale back these critical areas for 2026, reducing forecasts by -10.6 and -10.4 points respectively, opting instead to increase investment in equipment. This potentially signifies a worrying long-term shift away from innovation. The sole bright spot within the industrial sector is the data processing, electronics and optics industries, who are projecting increased investment across all areas, fueled primarily by expansion in research and development budgets (13.1 points).
The retail sector is also struggling, with investment expectations declining from -10.1 to -13.1 points for the current year, while pessimism continues for 2026 at -9.7 points. Service providers have similarly scaled back their investment plans significantly, dropping from +4.9 to -3.1 points. Only in 2026 do these businesses express a modicum of optimism (1.1 points).
The Ifo survey’s findings underscore a growing structural weakness in the German economy and present a considerable political challenge for policymakers, who will now face pressure to address the underlying causes of this widespread decline in investment confidence.