Germany-IW: Industry and construction threatened with recession

High energy prices and uncertainties stemming from the conflict in Ukraine have worsened the business expectations of most companies for 2022.

The construction and industrial sectors are particularly pessimistic about the future, according to new economic research from the Institut der deutschen Wirtschaft (IW). The service sector, on the other hand, is coming out of the coronavirus valley.

The list of problems facing the German economy is long: prices – especially energy – continue to rise, China excludes entire metropolises from the outside world, high infection rates cause staff absences and important deliveries are still long overdue. or not reach at all. And the war in Ukraine is causing additional uncertainty. While growth expectations for 2022 remained optimistic at the beginning of the year, the war is now significantly cooling them down. This is the result of an IW business survey of nearly 3,000 companies surveyed between early March and mid-April.

Declining trend in industry and construction, hope in service providers

Only a good 30% of construction companies still expect to increase production in 2022. Here the number of pessimists has increased by seven percentage points since last autumn and is almost equal to the number of positive companies. More construction companies also expect a reduction in investment and a small boost in employment. The industry continues to struggle with material shortages.

In the industry, 28% of companies are pessimistic – twice as many as in November 2021. The optimists remain dominant with 37%, but the industry is close to recession. Particularly high energy prices, which have recently risen further due to the war, are causing problems for industry. To this is added the fear of additional materials and supply difficulties.

In the service sector, optimists continue to have the upper hand with almost 50%. Here, many companies expect better jobs as a result of the end of Corona restrictions. The vast majority even predict an increase in investment and an increase in employment.

Large regional differences

Expectations vary considerably from region to region. The companies from Bavaria and North Rhine-Westphalia are mostly positive. As delivery problems continue to plague the car industry, the expectations of the Baden-Württemberg business community are more modest. The climate is particularly gloomy in the north: Here the pessimists are in the majority. Collaborating cooperation agreements with Russia – such as the Nord Stream pipeline – have hit the northeastern part of the country hard. More than 40% of companies here see another bleak year ahead.

A ray of hope

Despite the burdens caused by the war and the pandemic, almost 40% of companies still expect the year to turn out for the better. Compared to last November’s survey, this is a drop of ten percentage points, but service companies in particular expect Germans to be happier to spend the money they saved during the pandemic. In addition, companies want to cover their deferred investments, they hope. “Overall, the optimistic expectations of companies in Germany for production do not indicate an employment and investment crisis,” said IW economics expert Michael Grömling. “However, in the face of a rapidly changing geopolitical situation, the mood of companies can change quickly.”