WBO Spring 2024: German Companies Optimistic About Global Economy but Remain Cautious Amid Risks

German companies are displaying renewed optimism about the global economy's trajectory, according to the latest survey by the Association of German Chambers of Industry and Commerce (DIHK). Despite this optimism, businesses are still grappling with significant risks, including low demand and a shortage of skilled workers, which temper their overall outlook.

Optimism Amidst Global Economic Recovery 

The DIHK survey reveals that nearly a third (31%) of German companies operating internationally expect an economic recovery at their locations this year, up from 22% in autumn 2023. Conversely, only 19% foresee an economic slowdown, a decrease from the previous 28%. This shift indicates growing confidence among businesses, with the balance of better and worse economic assessments rising from minus six points in the fall to a positive twelve points, the highest in two years. 

Persistent Business Risks 

Despite this optimistic outlook, companies continue to face numerous challenges. Low demand remains the predominant concern, cited by nearly half of the respondents. Additionally, uncertain economic policy conditions are increasingly seen as a risk, affecting 43% of companies, up from previous surveys. The shortage of skilled workers also remains a significant issue, identified by 39% of respondents. 

The DIHK's adjusted export forecast for 2024 reflects these mixed sentiments. Following a 1.8% decline in German exports in 2023, the forecast for this year is expected to break even, showing no significant growth but also no further decline. 

Business Sentiment and Investment Intentions  

Despite the ongoing challenges, the business situation for German companies abroad has shown signs of stabilization. About 44% of companies report a good business situation, with another 45% describing it as satisfactory. The balance of positive versus negative business assessments has slightly improved, indicating a stable, if cautious, business environment. 

Investment plans, however, remain subdued. Only 32% of companies intend to increase investments over the next twelve months, while 16% plan to reduce them. This cautious approach reflects the ongoing uncertainties and high interest rates, despite falling inflation in many regions. 

Measures for Resilience  

The survey underscores the importance of diversification in supply chains to mitigate geopolitical risks. The DIHK's ideas paper, “Diversification of Supply Chains,” emphasizes the necessity for Germany to strengthen raw material partnerships. Critical dependencies on imports for raw materials and intermediate products expose the economy to vulnerabilities, as demonstrated by recent supply chain disruptions. 

Germany is advised to expand its domestic raw material extraction and deepen partnerships with countries like Indonesia, Australia, Brazil, Chile, and the DR Congo. Utilizing initiatives such as raw material monitoring by the German Mineral Resources Agency can help secure sustainable supply chains. Enhanced cooperation with European and global partners is also recommended to improve access, availability, and extraction conditions for essential resources. 

Indeed, in response to recent crises, companies have been diversifying their supply chains and exploring new markets. About 45% have opened new sales markets, and 47% have identified new suppliers for raw materials and intermediate products. This trend highlights a proactive approach to mitigating future disruptions. 

Additionally, 17% of companies have increased their stock levels, with another 19% planning to do so, ensuring they have reserves in case of future delays. The relocation of production facilities is also being considered, with 16% having already done so and 22% planning to move parts of their operations to more stable regions. 

About the AHK World Business Outlook 

The AHK WBO is based on a regular DIHK survey of the member companies of the German Chambers of Commerce Abroad, delegations and representative offices (AHKs). 

In spring 2024, it collected feedback from 4,300 German companies, branches and subsidiaries worldwide as well as companies with close ties to Germany. The survey was conducted from March 25 to April 21, 2024. 

38% of the responding companies come from the industry and construction sector, 42% from the service sector and a further 20% are trading companies. Smaller companies with fewer than 100 employees account for 53% of the responses. 25% of the companies employ 100 to 1,000 employees.  

Large companies with more than 1,000 employees account for 22% of respondents worldwide. 49% are subsidiaries/branches of German companies, 31% are local or (non-German) international companies without a branch in Germany and a further 20% are local or (non-German) international companies with a branch in Germany.