Contraction forecast from German companies in 2023

The German Institute of Economics (IW) reported that about 4 out of 10 German companies expect their business to shrink in 2023.

IW announced the results of the expectation survey for 2023, which it conducted with 2,500 German companies. According to the survey, 39 percent of companies in Germany expect a decline in their business activities this year.

Companies cited high power costs, supply chain disruptions, and the ongoing war in Ukraine as reasons.

While only 32 percent of the companies participating in the survey evaluated their current business situation as better than a year ago, the rate of companies reporting that the current situation is worse has increased by one third compared to the previous year.

In the IW report, “A significant recession is predicted in the construction division and pessimism is prevailing in the industry. The deterioration in production expectations for 2023 can be observed in all economic areas at almost the same rate.” it was said.

“The risk of natural gas distress in the current winter period is not as present as in the summer of 2022, and power prices have declined since then. But prices still remain high and production cuts cannot be avoided,” the report said. phrases were included.

While high power prices, ongoing supply problems, and unusually high interest rates negatively affect the activities of German companies, according to the survey, 39 percent of companies operating in the manufacturing branch are pessimistic and 28 percent are optimistic about 2023.

On the other hand, Germany’s manufacturing division has been struggling with declining orders in recent months amid weakening demand amid the global economic slowdown.

Although the threat of gas shortages in industry due to the Russia-Ukraine war has been significantly alleviated, high power costs, high inflation and an uncertain economic outlook are creating headwinds for the division.

Experts say that decreasing orders do not pose a significant threat to the German economy for now, as incomplete orders accumulate due to material shortages, but will cause real difficulties at the end of the year or at the beginning of 2024.