According to a survey, pessimism is becoming increasingly widespread in the German trade sector in view of the difficult economic environment. Almost half of the craft businesses expect sales to decline in the next few months, and around one in five businesses expect the number of employees to fall, according to a survey by the craft association ZDH. The great uncertainty about economic developments is leading, above all, to a strong reluctance to invest.
Due to the declining demand for handicraft products or services, almost one in four companies are considering closing operations or giving up individual business areas. The Central Association of German Crafts (ZDH) warned in the survey that without location stimulus and the easing of the economic brakes, there would be a risk of recession in the craft sector.
ZDH: Expected sales declines “alarming”
“The stable economic situation in 2023 – at least for the trade as a whole – does not seem to be confirmed at the beginning of 2024,” it says. “The craft businesses have overall significantly declining sales expectations for the first two quarters of the current year.”
For the first quarter, 47 percent expected a decline in sales compared to the same quarter last year, while only 7 percent expected an increase in sales. From the ZDH’s point of view, this is an alarming result, even against the background of the high price increases over the past twelve months. Sales expectations for the second quarter were hardly better. According to ZDH, 4,448 craft businesses took part in the survey between February 5th and 14th.
The main reason for the weak sales expectations is likely to be the development of order backlogs. According to the information, companies are currently reporting backlogs of orders that last an average of 10.1 weeks. However, expectations are clearly negative until the end of the second quarter. 38 percent of companies expect order backlogs to decrease, while 16 percent expect them to increase.
Here too, according to the ZDH, pessimists predominate in all trade groups. This also applies to employment expectations: 22 percent of companies expected the number of employees to decline by the end of the second quarter, and only 6 percent expected an increase.
Small companies in particular are considering closures
According to the craft association, the weak economic development is slowing down the transformation. 42 percent of companies reported that they wanted to postpone investment projects. In addition to the closure of business premises or the abandonment of business areas, lower opening times of 18 percent are being considered or have already been implemented.
“If the economic difficulties continue, 13 percent can even imagine closing or handing over their own business as a last resort,” writes the ZDH. Small craft businesses in particular would consider closing or handing over operations.
In addition to the current economic challenges, the age structure at the peak of operations will also lead to numerous business handovers or closures. A third of craft businesses report such plans within the next five years. 53 percent of these companies sought a succession plan, 46 percent planned to close.
“Results are a clear call to action”
According to the survey, when asked about obstacles, the high tax and duty burden (68 percent) as well as the documentation and proof requirements that had to be fulfilled (52 percent) were cited as particularly burdensome. The shortage of skilled workers was cited as a problem by 44 percent of companies.
The high energy costs are also seen as a major burden (43 percent), which is also a reason for the decline in orders, which 41 percent of companies identified as a major burden. For the ZDH it is clear: “The results are a clear call to action for the federal government and basically a cry for help from companies to finally release the brakes on their locations.”
