Germany's businesses frustrated by economic decline

When Friedrich Merz came to office in May 2025, corporate boardrooms were abuzz with hope. As he ascended to the chancellorship, the leader of the conservative Christian Democratic Union (CDU) promised nothing less than an "economic turning point." With him at the helm, he declared, every political decision would be preceded by the question: Will this benefit Germany's economic competitiveness?

It certainly sounded plausible. After all, before returning to politics, Merz had made his fortune in the business world. For four years, he served as chairman of BlackRock's supervisory board in Germany, and he wrote a book entitled "Dare to Embrace More Capitalism."

As a candidate for chancellor, Merz promised that there would be no more "left-wing politics in Germany," and shortly after taking office, he called for greater economic efficiency. "We will not be able to maintain the prosperity of this country by relying solely on a four-day workweek and work-life balance."

In mid-May 2025, entrepreneurs and managers celebrated him for that statement during Economic Day, an event organized by the CDU's Economic Council.

With around 13,000 members from the business community, the Economic Council is not a party committee. It is a lobbying association that represents business interests and sees itself as an advisor to the CDU. From 2019 to 2021, Friedrich Merz himself served as vice president of the Economic Council.

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Germany as a center of industry 'under existential threat'

From an economic perspective, Merz has failed in his first year in office, delivering little of what he had grandly promised.

The Federation of German Industries reported: "Hardly any of the urgently needed structural reforms that were announced have been implemented. There is no overall plan for concrete reforms to promote growth and competitiveness." It added that Germany's position as a center of industry is "under existential threat."

The Association of German Chambers of Industry and Commerce, which primarily represents small and medium-sized enterprises, states: "Germany is now viewed as a country with a complex and costly bureaucracy. In many other countries, the conditions for investment and innovation are significantly better."

Jörg Dittrich, president of the German Confederation of Skilled Crafts, spoke in media interviews of "reform frustration instead of economic recovery." The strain on everyday business operations has "tended to persist, in some cases even increased, but certainly not decreased."

One year after a new government took office, the initial expectation of an economic upturn has turned into "palpable disillusionment and, in many places, clear frustration" across the skilled trades sector.

In fact, the last time this many bankruptcies were reported in Germany was after the financial and economic crisis more than ten years ago. The economy is stagnating, and growth is nowhere in sight. Confidence in the German economy is at its lowest since the height of the COVID-19 pandemic in May 2020.

German economy under pressure

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Merz anniversary marked by frosty reception

Economic researchers at the ifo Institute regularly survey confidence levels in the business community, and reports indicate that confidence is declining across all sectors. Expectations are pessimistic, due in large part to the war in Iran and the ongoing crisis in the Middle East. Oil prices remain high, and jet fuel is even becoming scarce. The blockade of the Strait of Hormuz is causing supply bottlenecks in many sectors, and inflation is rising. For the time being, any hopes of an upturn have vanished.

Chancellor Merz is well aware of all this, as he is of the widespread sense of disappointment. "I know the mood in the country is dire, it is, in fact, exceedingly dire," said Friedrich Merz in early May 2026 at this year's Economic Day, the very venue where he had been celebrated just a year earlier. This time, the reception was frosty, the applause subdued. "I acknowledge this mood. I accept it, and I take it very seriously."

"Since World War II, there has probably never been a more challenging time for Germany's federal government, society, and economy," he told the Chamber of Industry and Commerce in early May.

Yes, he acknowledged, much still needs to change in Germany, and he said he understands the critical voices and impatience within the business community. "I also understand the widespread urge to do something today so that the problem is solved tomorrow." But what has built up over years and decades cannot be undone in the blink of an eye. "You don't change a country in a week or a month."

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That's especially true when you have to govern in a coalition. With the center-left Social Democratic Party (SPD) as a partner, the CDU/CSU often finds itself at odds on issues such as the economy, labor and social policy. "The Social Democrats often like to think in terms of the larger collective," Merz noted at the CDU Economic Conference, "while we think in terms of small, productive groups. 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."

The chancellor sees no viable alternative to the coalition with the SPD. He has also ruled out new elections. "We are determined to succeed with the coalition we have now," he said at the Economy Day event. "I am firmly resolved to lead this coalition to success."

But fewer and fewer people believe Merz can pull this off. The latest ARD Deutschlandtrend survey shows that voter confidence in a swift economic turnaround has plummeted. This seems to be how the business community feels as well. The Federation of German Industries notes: "If companies are investing at all, they are mainly investing abroad."

This article was translated from German.