Economy: Industry and construction are pessimistic about the future

Economy
Industry and construction are pessimistic about the future

According to a survey, the economic consequences of the Ukraine war are hitting German industry and the construction sector particularly hard. The mood there has deteriorated significantly.

The German Economic Institute (IW) therefore sees industry and the construction industry on the verge of recession. In this case, production would no longer grow but shrink. Hopes for the German economy rest on the service industry, which expects better business than 2021 this year due to the end of the restrictions to combat the corona pandemic.

“We are counting on the service sector developing a strong, stabilizing force,” said IW economic expert Michael Grömling of the German Press Agency. The service providers are also looking to the future with some skepticism. “However, the optimists dominate by a wide margin, so that the service sector can come up with an improvement compared to the previous year,” writes the IW.

Worse forecasts in the industry

According to the IW survey, however, the mood in industry has deteriorated significantly. In a survey in November 2021, 55 percent of the companies were still assuming an increase in production this year, but the figure is currently only 37 percent. At the same time, the proportion of pessimists has doubled to 28 percent. In particular, the high energy prices, which have recently increased further as a result of the war, are causing problems for the companies. Added to this is the fear of additional material and delivery difficulties. In the construction industry, the camp of pessimists is now almost as large as that of optimists.

Despite the burdens caused by the war and the pandemic, almost 40 percent of all companies surveyed hope that the year will turn out for the better. Compared to the November 2021 survey, this is a drop of ten percentage points, but service providers in particular expect consumers to be happy to spend the money they have saved during the pandemic. In addition, many companies hope to catch up on investments that have been postponed so far.

Grömling explained that the current production expectations of the companies do not indicate an employment and investment crisis. “However, in the face of an abruptly changing geopolitical situation, corporate sentiment can change quickly.”

Uncertainty similar to that during the pandemic

According to a survey by the auditor Deloitte, many German companies are expecting falling profit margins and are cutting back their investment and employment plans. The uncertainty is almost as high as it was immediately after the outbreak of the corona pandemic and had “influenced planning everywhere and increased caution,” said Deloitte.

The business prospects fell sharply. “The slump is particularly pronounced in the auto industry, where 83 percent of companies perceive a deterioration in business prospects,” says the study. The plans for investment and employment are still positive, but are also falling sharply. “Companies are becoming much more cautious. This is particularly true in the automotive industry, where the number of companies looking to cut investment and employment far outnumber those looking to increase it.”

When asked about high risks for their own company, 77 percent of the CFOs surveyed named rising energy costs and geopolitical risks, closely followed by rising raw material costs. Two thirds named a shortage of skilled workers, 59 percent increasing wage costs.

dpa