The energy price shock and the uncertain geopolitical situation are spoiling the mood for German companies at the turn of the year. According to a survey, there is now uncertainty in many places instead of optimism like a year ago. Numerous industries are preparing for difficult months. “I don’t think one can say that the recession has been cancelled. But it is likely to be weaker than initially feared,” said Michael Hüther, director of the German Economic Institute (IW) of the German Press Agency.
In an IW survey, 39 out of 49 business associations assessed the current situation as worse than a year ago. The majority also expects member companies to do less business. After all: According to an EY evaluation, many of the 100 listed companies in Germany with the highest turnover are likely to start the coming year with a profit and turnover cushion.
Unsure about the new year
A year ago, numerous companies would have thought that the most turbulent times were over, explained the IW. The Russian war of aggression in Ukraine changed the situation. “The negative assessments of the situation have reached an almost historic level,” said Hüther. Many industries went into the new year unsettled. “Companies are wondering whether the energy price brakes will take effect and how things will continue geopolitically. The imponderability of the energy supply is the major uncertainty factor.”
According to the survey, 30 trade associations expect their members to do less business in the coming year. “Companies are not assuming that the high energy prices will drop again in the foreseeable future. That dampens the outlook for the coming year enormously,” explained IW economics expert Michael Grömling.
The mood is particularly gloomy in sectors that require a particularly large amount of energy for their production. For example, the chemical industry expects to produce significantly less in 2023. Craftsmen, the construction industry, part of the financial sector and the real estate industry also expect things to deteriorate. They expect an end to the long real estate boom because of the rise in construction interest rates.
Hüther is worried about investments
Only 13 associations were optimistic in the survey, including the trade fair and advertising industry. She hopes that Corona failures will be made up for. Tourism is also assuming that there will be a catch-up effect after the slump in the Corona crisis. The rest of the associations expect that the previous year’s result can be maintained in 2023. This includes the investment industry.
Hüther is concerned about the expectations regarding investments. “The result is worse than it was during the corona pandemic.” 17 sectors expect a decline. 22 associations, mainly in the service sector, assume that investments will remain the same, eight that expenditure will increase.
Henrik Ahlers, CEO of the auditing and consulting company EY Germany, also expects the willingness to invest to fall in 2023: “Both citizens and companies will have to tighten their belts.” In the year that is coming to an end, the 100 listed companies with the highest turnover have, according to him, “done well” despite the headwind.
Labor market as an anchor of stability
Almost all (93 percent) of the top 100 recorded sales growth in the first three quarters of 2022 compared to the same period last year. Total sales increased by 30 percent to 1.78 trillion euros. Without the billions lost by the ailing energy company Uniper, which is to be largely nationalized, the combined operating profit (EBIT) of the companies would have risen by 22 percent to 145 billion euros. These were the highest absolute values since the first evaluation five years ago.
According to Hüther, the job market is proving to be an anchor of stability. 23 associations expect a stable development here. Another 16 expect fewer staff in their member companies, including banks and savings banks and agriculture. Some sectors also expect fewer employees due to the shortage of skilled workers. Nine sectors of the economy want to increase employment, including hospitality and tourism.
The IW surveyed 49 trade associations from mid-November to early December, and not every association answered all questions.
