Of 46 business associations surveyed, 22 anticipate workforce reductions next year. Only nine expect to increase hiring and 15 foresee stable employment levels.

The automotive, paper and textile industries are among those expecting production declines. They have been hurt by rising protectionism, weak exports and high domestic costs that have eroded Germany’s price competitiveness, the survey found.

“Those who hoped for a swift and comprehensive end to the economic crisis will also be disappointed in 2026,” said IW director Michael Huether. The economy is “stabilising at a lower level,” he added.

Investment plans remain subdued. Just 11 associations expect increases, while 14 anticipate cuts and 21 see stagnant investment at low levels, the survey showed.

Bright spots

Some bright spots emerged in sectors benefiting from increased defence spending, including aerospace and shipbuilding. Services also reported improved conditions compared to last year.

Business sentiment showed modest improvement, with 19 associations expecting higher production than in 2025 versus nine anticipating declines. This marks the first positive outlook balance in years.