Bureaucracy, the shortage of skilled workers, political missteps, and high energy costs are just some of the many reasons hindering the progress of the German economy. According to an EY survey of top managers from 115 German industrial companies, nearly half prefer investing abroad rather than in Germany. Consequently, jobs are being lost, and the return of jobs from overseas is quite rare. Nonetheless, while the current economic situation is largely viewed as bleak, opinions are more balanced when looking five years ahead.

„The German industry is sending alarm signals“, comments Jan Brorhilker, Managing Partner of EY’s Assurance division in Germany. Due to the grim economic outlook in the domestic market, many companies are turning to foreign markets to take advantage of better conditions. „For Germany as a business location, this means less revenue, fewer jobs, and reduced investments.“

Forty-five percent of respondents plan to establish new locations outside Germany, while only 13% intend to set up new sites domestically. As expanding abroad often leads to job relocations, 29% of companies are expected to shift jobs from Germany to foreign locations. Conversely, just 4% of industrial firms plan to bring jobs back from abroad to Germany. As a result, jobs are likely to be lost in Germany in the coming years. EY notes that it's „not surprising“ that 63% of managers responded this way, given their critical assessment of prospects for Germany. Overall, 84% of respondents rate the current economic situation negatively, with 23% rating it very negatively. But looking ahead, opinions are divided: 48% of managers expect an improvement in the economic environment over the next five years, while 49% foresee no such improvement.

Regulatory and political hurdles are viewed as the number one obstacle by respondents. Seventy percent of companies identified bureaucratic regulations as one of the top three barriers to economic recovery. According to the study, 49% cited „political missteps as growth killers“, and 26% identified inefficient administration as a problem. Brorhilker calls for a simplification of regulations, and quicker approval processes to alleviate the burden on industry. Instead of large industrial policy concepts, he advocates for speed, pragmatism, and a business-friendly approach. „Companies go where they can get quick and unbureaucratic help: abroad. We urgently need a new welcoming culture for industrial firms", he says.

Managers give a positive assessment of workers: „It’s not true that employees in Germany are unmotivated or unwilling to perform“, says Brorhilker. The real issue is that the qualifications companies need are increasingly scarce. The education and training system must be better aligned with the actual needs of businesses, especially in the Science, Technology, Engineering and Mathematics (STEM) fields.

Fifty-seven percent identified the skilled labour shortage as a significant brake on growth, while only 6% cited a high level of calling in sick. According to EY, only 13% of managers believe that employees are insufficiently motivated. Loosening job protection laws would not resolve the issue either, as only 6% see existing job protection rules as a significant barrier to growth.