German Businesses Brace for Workforce Reductions and Economic Challenges in 2027

A recent survey by the Institute of the German Economy (IW) reveals a grim outlook for many German businesses heading into 2027, with nearly one-third planning to reduce their workforce amid persistent economic difficulties. According to the IW's latest data, 32% of private companies intend to cut jobs next year, an increase from 29% earlier in 2026, highlighting a cautious corporate sentiment despite a brief economic boost in 2026.

The construction sector emerges as the hardest hit, grappling with the ongoing energy crisis and inflation pressures that have driven up interest rates and borrowing costs. The sector’s value added has dropped over 20% compared to 2019, and business sentiment there remains the most negative among all surveyed industries. Meanwhile, the industrial sector faces its own hurdles, with 47% of companies reporting worsening conditions relative to the previous year, and only 19% planning to increase investments.

Investment intentions across all sectors are mixed but tend toward contraction. Nearly 40% of firms expect to reduce investments, while only 25% anticipate increases, and about one-third foresee a decline in production, with only 20% predicting higher output for 2027. Overall, only roughly one in six companies plan to expand their workforce in the coming year.

Michael Grömling, head of the IW’s macroeconomic research group, stressed the seriousness of the situation, pointing out that German businesses are experiencing the longest stretch of negative expectations since 2005. He commented, "The short-lived economic spark will extinguish again next year," and emphasized the urgent need for government reforms, since an improvement from external factors seems unlikely.

Despite these challenges, the IW forecasts continued GDP growth of about 1% for 2027, slightly down from the estimated 1.2% growth this year, which may help the economy overcome what Grömling described as a "prolonged shock paralysis." However, uncertainty remains high as businesses brace for a difficult year ahead.