High construction costs due to more expensive materials are overshadowing the positive effects of falling interest rates. The industry is suffering from trade conflicts, geopolitical upheavals and a weaker global economy. In addition, there are "renewed risks to the supply of raw materials and materials as well as weakened competitiveness due to high energy, regulatory and labor costs and exchange rate appreciation".

The service economy, which accounts for around 70 percent of overall economic value creation, is also treading water. Business-related services are feeling the effects of the weakness in industry and construction, while consumer-related services remain weak due to restrained consumer spending. Only government and social services are growing slightly.

1,915 companies from industry, construction and private services took part in the current survey in October 2025.

Industry remains under the most pressure

The business situation of German companies remains poor. In fall 2025, the balance of positive and negative situation assessments is -20 percentage points, only slightly better than in spring (-22 points). 19% of companies report a better business situation than in the previous year, 39% a worse one.

Industry continues to be under the most pressure: almost 46% of industrial companies rate their situation as worse than in the previous year, with only 20% seeing an improvement. The mood in the service sector has also deteriorated - the balance worsened from -12 to -21 percentage points. Only the construction industry shows a slight improvement: the proportion of positive and negative assessments is almost balanced.

The picture is also bleak in terms of investment and employment. 38% of companies reported a fall in investment, while only a quarter reported an increase in expenditure. The situation is similar in terms of employment: Around 20 percent of companies have more staff than in the previous year, while 38 percent have fewer.

Every third company plans to cut jobs

After a brief recovery in spring 2025, the economic mood has recently deteriorated again, as a new IW company survey shows. This has direct consequences for the labor market: 36% of companies are planning to cut jobs in the coming year, while only 18% are creating new jobs.

The outlook is particularly bleak in industry: 41% of the companies surveyed plan to cut jobs, while only around one in seven industrial companies intends to create new jobs. Three quarters of the companies surveyed expect to produce less or at most the same amount in 2026 as they currently do.

"Job cuts instead of economic turnaround: Companies are suffering from major geopolitical stress," says IW economic expert Michael Grömling. Added to this are home-made location problems - high costs for energy, social security and bureaucracy. "Without government reforms, it is becoming increasingly unlikely that the billions in special programs from the German government will have the desired and necessary effect."

What about the willingness to invest?

The willingness to invest also remains low: only 23% of companies intend to invest more in the coming year than in 2025, while 33% intend to invest less. This further exacerbates the investment crisis in Germany: there has never been a phase of negative investment expectations over five consecutive six-month periods in the IW economic survey.

Production expectations? Industry remains pessimistic

Expectations for 2026 are once again weaker than in spring. Only 25% of the companies surveyed expect production to increase, while 32% anticipate a decline. The negative balance has thus risen to -7 percentage points.

According to the IW, a turnaround in sentiment is not in sight: "Based on a classification of the current expectation values in the history of IW economic surveys, an economic turnaround with a pronounced upswing quality cannot be recognized."

The outlook remains bleak, particularly in industry. 27% of industrial companies expect higher production figures, 36% expect a decline. The basic materials and capital goods sectors are particularly pessimistic.

Private service providers are also skeptical about the future: 22% expect an increase, 31% a decrease. The retail sector is particularly cautious. The construction industry, on the other hand, is stabilizing - here, positive and negative expectations are balanced at around a quarter each.

Regional differences

The regional picture is varied: Only Bavaria and the northern region (Schleswig-Holstein, Lower Saxony, Hamburg, Bremen) have positive expectations. Baden-Württemberg and North Rhine-Westphalia are at the national average. The outlook is particularly negative in the north-east (Berlin, Brandenburg, Mecklenburg-Western Pomerania, Saxony-Anhalt), where almost half of companies expect a decline in production and only 17% expect production to increase.

No upturn in sight yet

The IW economic survey for fall 2025 paints a clear picture: Neither industry nor the service sector expect a turn for the better in 2026. "A change in sentiment in German companies and an economic turnaround with a pronounced upswing quality" are not discernible, summarizes Prof. Dr. Michael Grömling.

Despite isolated rays of hope - in parts of the construction industry, for example - the German economy continues to face major challenges. Weak investment, a shortage of skilled workers and geopolitical uncertainties continue to weigh on economic development.

Source: Institute of the German Economy (IW)