A recent survey conducted by the Munich-based Ifo Institute, reveals that approximately 8% of German companies are currently in a ‘critical situation’, where they fear for their very existence.
This marks a slight increase from 7.3% in October 2024, indicating growing economic pressures amid Germany’s ongoing recession. 8.1% of firms reported fearing for their survival, up from the previous year.
The survey highlights deteriorating sentiment, with many companies citing high energy costs, supply chain disruptions, and weak global demand as major factors. Manufacturing and export-oriented industries are hit hardest, aligning with Germany’s broader economic contraction GDP shrank 0.3% in 2023 and shows no strong rebound in 2025.
This data is part of the ifo Business Climate Index, which polls thousands of German executives monthly on their assessments of current conditions and future expectations. Germany has been grappling with a prolonged crisis since 2022, exacerbated by the energy shock from the Russia-Ukraine war, inflation peaking at 8% in 2022, and intense competition from Chinese manufacturers in sectors like automotive and renewables.
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Only 25.8% of companies report being hampered by lack of skilled workers, the lowest in three years, though this remains a drag on growth. Unions like IG Metall have seen membership drop 8% since 2016, amid rising disputes over job cuts in auto giants like Volkswagen planning 35,000 layoffs by 2030.
27% of firms anticipate AI leading to an average 8% headcount reduction over the next five years, particularly in industry. 90% of organizations face shortages in security roles, heightening risks in a tense geopolitical environment.
ifo President Clemens Fuest described the economy as “increasingly falling into crisis,” urging structural reforms to boost competitiveness. While not all sectors are equally affected—services show some resilience—the overall outlook remains cautious, with forecasts for mild contraction in 2025.
Germany’s manufacturing sector, which accounts for about 19-20% of GDP and employs roughly 7 million people, is bearing the brunt of the broader economic challenges highlighted in the ifo Institute’s November 2025 survey.
While the overall figure of 8.1% of companies in a “critical situation” fearing for their existence applies economy-wide, manufacturing firms are disproportionately affected, with estimates suggesting 10-15% in severe distress due to export dependency and structural vulnerabilities.
This sector has seen output decline by over 12% from its February 2023 peak, marking the deepest contraction since the 2008 financial crisis. The manufacturing downturn is driven by a mix of cyclical and structural factors, exacerbating the recession that began in 2022
Sharp drop in industrial output, with no rebound in sight. Energy-intensive subsectors (e.g., chemicals, metals) hit hardest. August 2025: -4.5% monthly decline largest in 3+ years. Annual contraction: 2.0% in 2024, projected 1-2% further drop in 2025.
ifo Business Climate Index for manufacturing at multi-year lows, with pessimistic outlooks dominating. November 2025: Worsened due to order shortages; capacity utilization at 78.2% vs. 83.3% long-term average.
Resurgent shortages in semiconductors, rare earths, and electronics, amid geopolitical tensions. Affects auto, machinery, and green-tech; tied to China export restrictions. Rising layoffs and furloughs, despite slight easing in skilled worker shortages.
DIHK Survey: 30% of industrial firms cutting staff in 2025; only 11% hiring. Volkswagen’s 35,000 job cuts by 2030 accelerated; overall sector risks 100,000+ losses. Weak foreign demand, especially from China; post-pandemic shift from goods to services hurts exporters.
Exports down 4.5% in past 6 months; China sales for autos fell 20-30%. Automotive and machinery lead declines; EVs offer some offset but lag in adoption. <4 million units in 2024 from 5.6M in 2017; further drop projected. Major output falls; pharma and electronics also down sharply.
Post-Russia-Ukraine war, gas prices remain 2-3x pre-2022 levels, eroding competitiveness in energy-intensive industries (e.g., chemicals down 10-15%). This has led to “creeping deindustrialization,” with firms relocating to the US or Asia for cheaper energy.
China’s “Made in China 2025” initiative has flooded markets with low-cost EVs and machinery, capturing 30%+ of Germany’s traditional auto export share. US tariff threats under a potential Trump administration add risks, potentially costing €10-20B in exports.
High bureaucracy €65B annual compliance cost, aging workforce; 700,000+ vacancies, and stagnant productivity down 0.5% annually stifle investment. Public infrastructure underinvestment near OECD bottom compounds this.
ifo President Clemens Fuest warns of a “structural crisis” in manufacturing, with investment reluctance deepening the slump. While services show resilience, the sector’s woes risk spilling over to neighbors like Austria and the Netherlands via supply chains.
Forecasts point to 0.1-0.5% GDP contraction in 2025, with manufacturing dragging growth to near-zero or negative. Recovery hinges on ECB rate cuts, US-China trade stabilization, and domestic reforms like deregulation and energy subsidies.
Firms are adapting via “China-for-China” strategies like VW’s local EV partnerships, but this risks IP leakage. Long-term, boosting R&D in AI and green tech could offset losses, though experts like the BDI call for radical steps to avert the longest postwar downturn.