German companies expect zero growth and high inflation this year

The Association of German Chambers of Industry and Commerce (DIHK) published the results of its survey on the outlook of the country’s economy with 21 thousand German companies from all sectors.

Accordingly, 34 percent of the German companies surveyed evaluated their job status as good, while 51 percent reported their job as satisfactory. 15 percent of companies also rated their business as bad.

Almost a quarter of companies surveyed said they expect their business situation to worsen over the next 12 months.

65 percent of companies surveyed rated energy and raw material prices as the biggest business risk, up from 72 percent at the start of this year.

The DIHK survey identified labor costs as the second biggest risk due to the shortage of skilled workers and high inflation. 53 percent of companies surveyed cited labor costs as business risk.

DIHK does not expect GDP growth in Germany this year as the economic outlook remains bleak for the next 12 months.

According to DIHK, the inflation rate will be 6 percent this year, well above the 2 percent target of the European Central Bank (ECB).

“The global economy and domestic demand cannot provide any momentum at the moment”

DIHK Board Member, Ilja Nothnagel, in the presentation of the report in Berlin, stated that the “side trend” that caused concerns in the German economy since the beginning of this year continues, and said, “There is still no broad-based bullish sign”.

Noting that German companies have shown “remarkably resilient” despite high energy prices, rising interest rates and the war in Ukraine, Nothnagel said, “However, the economic outlook for the next 12 months remains gloomy in general, especially as incoming orders on the demand side have dropped significantly. . DIHK still expects zero growth in the German economy this year.”

Noting that the economic situation of companies in Germany has not gained momentum despite slight improvements, Nothnagel said, “Unfortunately, the global economy and domestic demand cannot provide any momentum at the moment. When it comes to business risks, in addition to economic risks for companies, long-term, structural challenges for the German economy. It continues to come to the fore.”

Noting that the lack of skilled workers is currently the second biggest business risk for German companies, Nothnagel said, “Given the aging of society in Germany, the shortage of skilled workers will continue to be one of the main structural challenges for companies in the future.”

Nothnagel also stated that labor migration to Germany should be increased in order to reduce the shortage in the labor market.

The German government expects 0.4 percent growth in the economy this year

According to the leading data of the German Federal Statistical Office (Destatis), the German economy did not grow in the first quarter of this year due to the unusually high inflation and rising interest rates suppressing consumer spending. Thus, after zero growth in the first quarter, the German economy did not “closely” enter the technical recession, which is expressed as “a contraction in GDP for two consecutive quarters”.

The German economy shrank 0.5 percent in the last quarter of last year.

Although the bottlenecks that emerged during the Kovid-19 epidemic eased, the country’s economy is adversely affected by the stagnation in demand as a result of the rise in interest rates, the decrease in confidence in the economy and the decrease in the purchasing power of consumers in an unusually high inflation environment.

The German government expects 0.4 percent growth in the economy this year. Leading German economic institutes predict the country’s economy to grow by 0.3 percent this year.

Destatis will release its final first quarter GDP data on May 25.