German business confidence falls to pandemic-era low one year into Merz's chancellorship as industry groups warn of 'existential threat'

One year after Chancellor Friedrich Merz took office promising an "economic turning point" in which every political decision would first be tested against German competitiveness, the country's business community is publicly disillusioned. The ifo Institute's confidence index has fallen to its lowest level since the height of the COVID-19 pandemic in May 2020, with declines across every sector, while bankruptcies are running at levels not seen since the post-2008 financial crisis and growth has stalled.

Industry associations have hardened their tone. The Federation of German Industries said in a statement that "hardly any of the urgently needed structural reforms that were announced have been implemented" and that "there is no overall plan for concrete reforms to promote growth and competitiveness," warning that Germany as a centre of industry is "under existential threat." The Association of German Chambers of Industry and Commerce, which speaks for the Mittelstand, said Germany is now seen as "a country with a complex and costly bureaucracy" where the conditions for investment compare poorly with other jurisdictions. Jörg Dittrich, president of the German Confederation of Skilled Crafts, described the mood across the trades as "reform frustration instead of economic recovery," with day-to-day business pressure having "tended to persist, in some cases even increased."

The ifo surveys link the gloom in large part to the Iran war and the wider Middle East crisis: oil prices remain high, jet fuel is becoming scarce, and the blockade of the Strait of Hormuz is producing supply bottlenecks in multiple sectors as inflation rises. The Federation of German Industries summarised the investment outlook bluntly: "If companies are investing at all, they are mainly investing abroad."

Merz, who before re-entering politics chaired BlackRock's supervisory board in Germany and wrote a book titled "Dare to Embrace More Capitalism," addressed this year's Economic Day organised by the CDU's Economic Council — the same forum that had celebrated his "no more left-wing politics in Germany" pitch in mid-May 2025. This time the reception was frosty and the applause subdued. "I know the mood in the country is dire, it is, in fact, exceedingly dire," he told the audience. "I acknowledge this mood. I accept it, and I take it very seriously." He went further at the Chamber of Industry and Commerce in early May, saying that "since World War II, there has probably never been a more challenging time for Germany's federal government, society, and economy."

Merz placed much of the blame on coalition arithmetic with the Social Democrats. "The Social Democrats often like to think in terms of the larger collective, while we think in terms of small, productive groups," he told the CDU Economic Conference. "The Social Democrats believe more in redistribution. We believe more in the idea that you have to generate wealth first before you can redistribute it." He has ruled out new elections and said he is "firmly resolved to lead this coalition to success," while asking business for patience: "You don't change a country in a week or a month."

The latest ARD Deutschlandtrend survey reports a collapse in voter confidence that Merz can deliver a quick economic turnaround, a reading the business associations now echo openly.