German economy remains stuck and set for just 1% growth in 2026, chamber of c...

Germany's Economic Challenges and Outlook

By Maria Martinez

Current Economic Conditions

BERLIN, Feb 17 (Reuters) - Germany's economy is expected to grow by 1% this year, slightly more than previously forecast, but reforms need to be implemented to achieve a sustainable recovery, the German Chamber of Industry and Commerce said on Tuesday.

Business Sentiment and Investment

"That is too little; our competitors are more dynamic," said Helena Melnikov, managing director of DIHK, the chamber of commerce, which had previously forecast 0.7% growth in 2026.

Export Expectations and Future Growth

Europe's biggest economy is still struggling to gain traction as geopolitical uncertainty, high operating costs and weak domestic demand weigh on companies, with growth in 2026 driven largely by statistical and calendar effects.

"A growing global economy and higher public spending — for example on security and defence — are giving some areas a slight lift. But across the board, too little of that is being felt," Melnikov said at the presentation of the forecasts in Berlin.

Since 2019 the global economy has grown by 19%, she said, the U.S. economy by 15%, and Italy's by 6%. "Only in Germany have we been treading water since 2019, with 0.2%," Melnikov said.

BUSINESSES SLIGHTLY MORE OPTIMISTIC

The DIHK's business climate index, based on responses from around 26,000 firms across sectors and regions, rose slightly to 95.9 points but remained well below its long-term average of 110.

Despite reforms announced by the federal government - such as the 500-billion-euro ($592.05 billion) infrastructure fund and measures to boost corporate investment approved in June - the outlook is only marginally more optimistic than in the previous survey last October: one in four companies expects the economic situation to worsen, the survey showed.

"With the handbrake on, we won't get out of the valley," said Melnikov, urging faster reforms to cut bureaucracy and lower labour and energy costs.

Companies cited weak domestic demand (59%), rising labour costs (59%), uncertain economic policies (58%) and high energy and raw material prices (48%) as key risks, according to the survey.

Investment plans stayed subdued. Only 23% of firms intend to increase investment, while 31% plan cuts.

"That won't close the existing gap: private investment is 11% below the pre-coronavirus level," Melnikov said.

Companies also remain cautious on hiring: a quarter of businesses expects headcount to fall, while only 12% plan to increase staff.

Export expectations, however, offer some hope: despite trade-policy turbulence, 22% of companies expect exports to rise in the next 12 months, three percentage points more than in the October survey.

($1 = 0.8445 euros)

(Reporting by Maria Martinez, editing by Thomas Seythal and Susan Fenton)