German Businesses Bullish on 2022
Running a business over the past couple of years has been challenging. Think supply chain disruptions, major input shortages, lockdowns and business closures. But not all business and economic news has been negative recently. The German Economic Institute’s year-end survey is an example of one of the many positive indicators. The takeaway? German businesses are bullish on 2022.
[Text in blue below has been translated from German by Randal Gernaat.]
Over 80% of industry sectors surveyed expect output to increase in 2022 – no industry sectors anticipate a decline in output. These are the key results from the annual year-end business survey published by the German Economic Institute (IW) based in Cologne. (The survey was conducted among 48 industry associations between the middle of November and the middle of December of last year.)
Companies in half of the sectors intend to increase investment this year. Six sectors forecast a decrease. And firms in 21 of the 48 sectors (44%) predict an increase in employment in 2022, with only eight sectors planning to decrease staff levels.
Michael Hüther, Director of the German Economic Institute, cited three reasons for this optimism in a Handelsblatt article from December 27, 2021. First, “We are still making up for lost output, having not yet surpassed pre-pandemic levels. Second, businesses continue to face shortages of materials and major delivery delays and are therefore playing catch up. And third, backlogs of orders are at historic highs.”
Delving into the survey results reveals which sectors are booming and which continue to struggle. Raw material shortages continue to affect firms in industries such as rubber and paper processing. Sectors such as shipbuilding and the trade fair industry are suffering from the continued uncertainties surrounding pandemic leisure and business travel. And the financial sector continues to face structural changes, low margins and increased competition from new players in online banking services.
But most other sectors are more optimistic about 2022. Companies in industries such as mechanical engineering or steel and metalworking expect significantly higher output this year. Improved prospects for Germany’s key industry, automobile manufacturing, is likely the key driver here. The construction industry, whose main pandemic woe has been a shortage of qualified workers, is also bullish on prospects for 2022. The new German government has indicated it wants to build 400,000 new housing units per year.
For this overall optimistic scenario to become reality, however, the economy will need the support of lawmakers, Director Hüther explained in a recent Deutsche Welle article. There is no shortage of challenges facing the German economy. And a business-as-usual approach will not be sufficient in his opinion. The German government needs to “finally show it is capable of taking action,” said Dr. Hüther. “We have a very specific question we need to answer: How can we get the government to produce effective and reliable policies again?” A solution to that question, according to Dr. Hüther, needs to be found as soon as possible.
