Economic situation better than mood suggests | Business| Economy and finance news from a German perspective | DW | 02.01.2013
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Economic situation better than mood suggests

What are German entrepreneurs hoping for in 2013? A leading German research institute has asked industrial associations about their economic expectations and said business is brisk, while the mood is downbeat.

The German economy appears well-organized when it comes to seeing its various interests represented. Each economic sector has its own lobby association which counsels its members and tries to influence policy makers.

The Cologne Institute for Economic Research (IW) is also financed by associations and individual companies. It's a think-tank which has been known for representing liberal economic positions in the interests of employers. IW Director Michael Hüther asks German industrial associations once a year about the mood among their member companies.

Pessimism prevails

At first glance, the results of the latest poll are sobering. Every second association is rather pessimistic and expects the business situation to worsen in 2013. The rest believe there won't be any major changes. And no one predicts any improvements. "For the first time since 2009, not a single sector expects the situation to become better in the new year," Hüther says.

Companies are particularly worried about the protracted eurozone debt crisis. But the prevailing bad mood does not automatically translate into worse business figures. Only 11 of the 46 associations polled expect their businesses to deteriorate, while 20 lobby groups believe their members' business figures will pick up. According to Michael Hüther, the mood is clearly worse than the actual situation. "The really important indicators concerning output, investment and employment levels are extremely robust."

Moaning and groaning at a high level?

Director of the Cologne-based IW research institute, Michael Hüther Photo: Karlheinz Schindler

IW's Michael Hüther says not all industry complaints are just part of a strategy game

Could it be then that robust business expectations on the one hand and a bad mood among entrepreneurs on the other are just a preventive measure by industry to head off workers' possible pay hike demands and urge policy makers to do more for companies across the nation?

For Hüther, the subdued mood is "not unfounded". He claims firms are extremely cautious at present, adding that memories are still very much alive when the world economy ground to a standstill at the end of 2008 and everything spiraled out of control. That's not so long ago, he says.

Eleven associations expect employment to go down in 2013. Among them are the mining and printing industries as well as in the banking and energy sectors. Meanwhile, the bad mood shared by utility companies has, in no small way, been brought about by inadequate policy decisions, Hüther maintains.

"The government has opted for a turnaround in energy policies, but obviously it's not in a position to follow it through.” In Hüther’s view, this has unsettled companies planning big investments. "Despite globalization, the political decision-making process remains highly important in terms of creating the right framework conditions," he adds. "It impacts our fortunes on fiercely contested global markets as well as our ability to create jobs and incomes in our country."

Engineering sector growing

While energy companies' expectations are low, conventional sectors such as the automobile and electronic manufacturing sectors - but above all the engineering sector - tend to have brighter outlooks. "Classical industry is our growth engine and looks well positioned and robust across the board," says Hüther. "In the engineering sector, we even expect a higher output in 2013 and mounting investments. Things are bottoming out right now, and we're looking up again."

And that assumption dovetails with the IW's growth forecast. While companies got off to a strong start in 2012 and got weaker in the process, 2013 is expected to see things going the other way round. There'll be a weak start, followed by an economic pick-up in the second half of the year. Throughout 2013, Hüther predicts the economy to grow by 0.7 percent, slightly less than in the previous year.

The question remains of whom the IW's poll serves. Hüther claims it is meant to provide some orientation for both companies and policy makers. "Basically, it's a warning signal that, even in an election year, one shouldn't slide into inaction."

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