DIHK Chief Executive Helena Melnikov: “Double crisis weighs on the German economy”
Business conditions, investment and employment plans at long-term lows. Companies urgently need structural relief and reforms
The war in the Middle East is stifling the hopes of an economic recovery that had begun to emerge at the start of the year. The global repercussions of the crisis, combined with the structural problems in Germany as a business location that have remained unresolved for years, are hitting domestic companies with full force. This is shown by the Economic survey conducted by the German Chamber of Manufacturing Indus try and Commerce (DIHK) in early summer 2026, which reflects the sentiment of around 23,000 companies across all sectors and regions. “We are in the midst of a double crisis,” explains DIHK Chief Executive Hel ena Melnikov. “The structural problems in Germany are compounded by the economic consequences of the war in the Middle East. Weakened by three years of recession and stagnation, many feel they have reached their breaking point. Unlike in previous crises, many businesses have hardly any reserves left to counter these pressures. In Germany, we are living off our reserves.”
Companies are assessing their business situation as negatively as they did at the height of the coronavirus pandemic: more than one in four companies describe their situation as poor, whilst only 23 per cent de scribe it as good. The situation is particularly dire in the trade sector, where 35 per cent say the situation is poor. Companies’ outlook for the future has also darkened: a third expect business to deteriorate over the next twelve months – eight percentage points more than at the start of the year. Only 13 per cent remain optimistic about the future. As a result, the DIHK sentiment index has plummeted once again: from 95.9 points at the start of the year to just 88.1 points. This is the average of assessments of the situation and expectations. Due to the poor results, the DIHK is lowering its growth forecast for 2026 from 1.0 per cent to 0.3 per cent, as projected at the start of the year.
“Even before the current crisis, businesses were under severe strain from high labour costs, energy prices, bureaucracy and taxes. The recent massive rise in Energy and raw materials prices is the straw that breaks the camel’s back for many firms,” explains Melnikov. “Shortly after the war began, there were price surges not only in oil, gas and petrol, but also in building materials and plastics. Cost pressures are now affecting almost all sectors of the economy. Many companies can no longer cope with this burden.”
Accordingly, 70 per cent of companies cite energy and raw materials as their greatest business risk (start of the year: 48 per cent). At the same time, the top risks from the start of the year also remain at a high level: rising labour costs (57 per cent), weak domestic demand (56 per cent) and uncertain economic con ditions (58 per cent) are very frequently cited risk factors.
The war in the Middle East is also putting a damper on the global economy and intensifying international competition for German exporters. The export outlook for the Manufacturing Industry, which had given cause for cautious optimism at the start of the year, no longer offers any grounds for confidence: three in ten firms expect exports to decline, whilst only 19 per cent anticipate rising exports.
The gloomy mood is also weighing on investment. Only 22 per cent of companies plan to increase their investment budgets, whilst more than a third are having to cut them. When businesses do invest, they do so mainly to replace machinery, plant or equipment – at 70 per cent, this figure is higher than ever before. Investment in capacity expansion, by contrast, is at a low not seen since the 2008/2009 financial crisis. Product innovation, too, now plays only a minor role in investment decisions.
The poor economic situation has long since had an impact on the labour market. Just under a quarter of the companies surveyed plan to cut staff, whilst only one in ten intends to hire more employees – the low est figure since the coronavirus pandemic. This is also reflected in the trend regarding the Lack of skilled workers. Whilst the Lack of skilled workers recently represented a significant business risk for more than half of companies, only 36 per cent are currently concerned about it.
“No sooner had the first glimmers of economic hope appeared on the horizon than the war in the Middle East has cast a fresh shadow over the already weakened German economy. A sustainable recovery is re ceding into the distant future,” says Melnikov. As Germany’s influence on geopolitical risks is limited, he argues, it is all the more important that politicians resolve the problems at home: “The economic problems in our own country are home-grown. In the first year of the Merz government, important decisions were postponed. That is not enough to regain confidence and trigger investment.”
The federal government must now act as quickly as possible to reduce energy and labour costs as well as taxes, cut back on bureaucracy and reporting requirements, and speed up procedures at all levels. “The first urgent measures would be to bring forward the corporate tax reform already agreed to 2027, to im plement the promised reduction in electricity tax for everyone, and to pass the Future Infrastructure Act,” said the DIHK’s Chief Executive. A swift reform of income tax is also important. “As announced in the coali tion agreement, small and medium incomes should be relieved. But please without offsetting this through higher taxes on high earners.” A change of course is also needed on social security contributions; the federal government must bring itself to finance non-insurance-related benefits entirely through the federal budget. The planned increase in the contribution assessment ceiling is the wrong approach. It drives non wage labour costs further up and makes labour in Germany even more expensive. This weakens employ ment, places a burden on businesses and exacerbates structural competitive disadvantages.
“Germany has been stuck in a structural crisis for years,” said Melnikov. “The federal government must finally set the right priorities: reduce the burden, cut costs, and speed things up. Only through bold re forms can the economy return to a sustainable growth path with secure jobs, greater competitiveness and growing prosperity. Ultimately, the state will also benefit from this through rising revenues.”
The full results of the DIHK Economic Survey conducted in early summer 2026 are available on the DIHK website. The website contains the full survey report, detailed data and charts, sector- and region-specific analyses, and methodological background information.