German economic recovery remains fragile, industry group warns

Germany's economic recovery remains fragile despite improving business sentiment, foreign trade association BGA said.

"Companies are seeing light at the end of the tunnel again, but they are still driving with the handbrake on," BGA president Dirk Jandura told dpa.

Sentiment in the wholesale sector is improving, he said, "but we are still a long way from being out of the woods."

According to a survey by the association, companies see their business situation improving after diversifying supply and distribution channels and adapting to a series of crises.

However, the recovery remains on shaky ground.

Leading German economic research institutes have raised their growth forecast for this year and now expect gross domestic product (GDP) to increase by 1.3%, up from a previous forecast of 0.6%.

The government is also expected to raise its growth forecast next week. Higher spending on infrastructure and defence, financed through borrowing, is expected to be a key driver.

Jandura said the recovery needed a political foundation, pointing to bureaucracy as a major burden on businesses.

He said 82% of companies surveyed saw bureaucracy as one of the biggest obstacles to competitiveness, while 78% had yet to feel any relief.

The improvement in sentiment had also not reached the labour market, the BGA said.

More companies in the sector were planning to cut jobs than create new ones, Jandura said, calling this a warning signal that policymakers should take seriously.