Small businesses are sounding the alarm over the weakening of the German economy

Thousands of small and medium-sized businesses that form the backbone of the German economy warned this week that the country was losing its lead as the country's central bank signaled that a recession would loom over Germany in the first three months of 2024 .

“Every day, Germany is losing its ability to remain internationally competitive,” said an open letter to the government signed by 18 associations representing companies in sectors ranging from technology to trucking and taxi companies.

The purpose of the letter was to urge lawmakers to overcome the partisan battle blocking passage of a law intended to provide tax breaks for investments that accelerate the transition to a green economy. But the sweeping statement checked off a list of concerns facing companies, including high energy prices, labor shortages, slow efforts to digitize bureaucracy and high taxes. “The economic downturn is self-made,” it says.

These tensions are reflected in a report published on Monday by Germany's central bank, the Bundesbank, which said the country's economy, Europe's largest, was on the verge of contracting in the first three months of the year. After a contraction of 0.3 percent in the final months of 2023, a second consecutive decline would push the country into a technical recession.

The Bundesbank cited a weak export market, price-conscious consumers who remain cautious with their spending and a lack of investment by companies spooked by higher borrowing costs.

The country's Economy Minister, Robert Habeck, last week called the state of the economy “dramatically bad”. On Wednesday he will present the government's 2024 economic report, which includes forecasts of just 0.2 percent annual growth, scaled back from the 1.3 percent growth forecast issued last year.

Mr. Habeck's ministry has drafted legislation, inspired by the U.S. Inflation Reduction Act, to provide billions in tax breaks to companies investing in green energy. The idea is to attract many German companies that have moved their investments to the United States.

Corporate taxes in Germany are among the highest in Europe at more than 29 percent, compared to around 25 percent in neighboring France and the Netherlands. .

The lower house of parliament passed the law in November, but members of the conservative opposition parties are blocking its final passage through the upper house. They point out that the implementation of the bill will be the responsibility of the states, which do not have sufficient resources. They are also demanding that planned cuts to subsidies for agricultural diesel fuel – a proposal that sent farmers onto the streets in nationwide protests last month – be scrapped in exchange for their support.

The public call from the business associations is a special campaign for groups that usually remain in the background. It reflects the frustration that many of the small and medium-sized companies – known as the Mittelstand – feel about the government's willingness to spend billions to attract big companies, such as chipmaker Intel or battery maker Northvolt, said Jens Südekum, professor of economics at the University of California. the Heinrich Heine University in Düsseldorf.

“That is why this law is so important – it is a tool for everyone,” said Mr Südekum. “For small and medium-sized businesses this is really essential.”