The stock markets are currently euphoric. However, it is driven by the enormous profits of a small number of large corporations. The vast majority of industrial enterprises, especially small and medium-sized enterprises, are struggling with stagnation, inflation and tariffs. Therefore, they look to the future with concern.
This results from a current survey conducted by the consulting company EY Parthenon among the heads of 1,200 large enterprises in 21 countries, to which WELT has exclusive rights. 20 percent respondents achieve an annual turnover of less than USD 500 million, 30 percent above five billion and the rest are in between. The survey, conducted in August, therefore gives a good picture of the mood in the entire economy.
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Firstly, it shows how strongly new customs and trade barriers affect many businesses. 77 percent company executives expect that higher tariffs will significantly weaken the financial results of their companies. In Germany, this percentage is practically the same and amounts to 76 percent, but interestingly, it is the highest in the United States. There it is 92 percent.
This is further proof that tariffs are not paid by foreign companies, as US President Donald Trump always claims, but at least largely by their own companies and citizens.
However, most company leaders do not expect a short-term improvement in the geopolitical and economic situation – on the contrary: 57 percent worldwide. believes that the uncertainty will last more than a year, in Germany it is 63%. In this country, as much as 32 percent assumes that the difficult economic situation will last for more than three years, while worldwide only 24% is so pessimistic.
Americans remain optimistic
Only the Japanese are even more negative than the Germans. However, in the United States, only 15 percent expects such a long period of difficulties – the American tendency to be optimistic about the future may be important here.
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However, consultants share a rather pessimistic view. “Nationalist economic policies are gaining ground around the world,” says Sandra Krusch, a partner at EY-Parthenon in Germany. We should not expect a quick return to a rules-based international order with as free trade as possible. “Uncertainty and increasing risk are the new normal,” he says. Companies must adapt to this.
Many are already doing this. At the same time, they focus primarily on a stronger localization of their activities. Globally, 74 percent CEOs declare that they intend to increase investments in individual sales markets and expand their own production and distribution capacities there. Among German companies, this percentage corresponds to the global average, the highest again in Japan (97%), where pessimism is the highest.
At first glance, it seems surprising that 82 percent American corporations also want to respond by transferring their operations. However, localization can of course mean two things: construction and production in foreign markets, but also a return to your own market. In the past, it was American companies that moved production abroad – many of them may now want to change that.
The best example of this is Apple. The company produces its iPhones almost exclusively in low-cost locations, previously mainly in China, and recently increasingly in India. However, the company recently also announced major investments in the United States.
It is therefore no surprise that, according to the study, the United States is the country where the majority of companies intend to invest in the next twelve months: 82 percent. companies around the world have such plans – that's a huge percentage. They are followed by Canada and the UK, which are investment destinations for 32%. enterprises. India ranks fourth with 23% and Germany ranks fifth with 21%. “The United States' policy to attract more investment to the country is paying off,” says consultant EY Krusch.
Germany under pressure
For Germany, the pursuit of localization of global corporations may have rather negative consequences. “For decades, Germany has been one of the biggest winners of globalization,” Krusch says. However, the old model of deliveries from Germany to the entire world is losing relevance in the face of growing trade barriers. Not only the United States, but also other countries are increasingly demanding local production. “For German companies, this means that investments are increasingly moving abroad. Germany therefore derives only limited benefits from the development of international markets, and operations in this country are under increasing pressure.”
However, the survey also shows what Germany needs to do to become a more attractive investment destination. Respondents indicated that the main criteria when deciding on the choice of location are innovation and good infrastructure. In third place were energy and labor costs (49%).
So if the government wants to prepare Germany for the future, it must make the country competitive in these four areas.
Frank Stocker is an economic and financial correspondent in Frankfurt. He writes about investments, financial markets, economic conditions and interest rate policy. He also published books on the 1923 inflation and the history of the Deutschmark.
The article is a translation text from the German daily “Die Welt”.
