More than a third of firms in Germany expect production to fall this year as geopolitical issues and a weakening global economy weigh on demand for their products and services, according to a survey published on Saturday.

Last month, five leading German economic institutes warned that Europe's largest economy would grow just 0.1% in 2024 and 1.4% in 2025.

Global growth, which Germany's export-led economy relies so heavily on, is also set to slow to 2.4% this year, according to the World Bank.

The bank has predicted the slowest half-decade of growth in gross domestic product (GDP) globally in 30 years.

What are German firms currently saying?

The German Economic Institute found that 37% of firms think production will drop, while 23% expect it to increase. The companies said they don't expect the economy to recover this year.

The survey found that prospects are particularly poor in the industrial and construction sectors.

"This means that expectations for 2024 have once again deteriorated slightly since the autumn survey," the Cologne-based researchers stated.

The figures show that 39% of firms believe their current performance is worse than a year ago. Just 18% spoke of an improvement.

Hiring expectations improved slightly, according to the IW, with nearly a quarter of firms (23%) expecting an increase in job vacancies, while 35% predicted job cuts in their respective companies.

The IW found that the service sector is the only ray of hope. Some 34% of service firms expect to create jobs and boost investments.

German industry set to cut jobs, slash spending

By comparison, nearly 40% of industrial players think they will cut jobs and aim to scale back investments.

"This means that the industrial base in Germany is crumbling more and more," IW economic expert Michael Grömling said. "We have been in an investment crisis for far too long," which he said politicians need to tackle urgently.

Regional differences in production expectations were noticed, with the southeast of Germany — the states of Saxony and Thuringia — with a roughly equal proportion of firms expecting higher and lower production.

"This may reflect the better business activity in the electrical industry and the information and communication sector, which are relatively well represented in this region," the IW researchers said.

The eastern regions of Mecklenburg-Western Pomerania, Brandenburg, Saxony-Anhalt and Berlin are the most pessimistic. Some 48% of firms in these regions expect lower production this year, while 17% expect production to increase.

Small firms just as glum

The situation is also bleak in the small to medium-sized enterprise (SME) sector, according to a separate survey.

The SME Association, which represents the so-called cooperating SMEs, spoke of a hangover mood in the first three months of the year.

Some 45% of firms expect turnover to fall in the coming months, versus 16% expecting business to improve.

The SME Association survey found that firms favored cutting red tape (84%), modernizing tax law and lowering the tax burden for companies (59%).

With material from DPA news agency

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