German corporate leaders are getting increasingly wary about the country’s economic prospects as a recent KPMG CEO Outlook survey shows that confidence among executives has taken a nose-dive. From being the driving force for Europe’s economy, Germany today faces a slew of issues that range from sluggish growth to high energy costs, geopolitical tensions, and supply-chain shifts, all of which bring down the optimism in boardrooms across the nation.

In a survey of more than 1,350 chief executives globally by KPMG in 2025, only 72% of German CEOs said they expect their companies to grow in the next three years, compared with 77% in 2024. This shows one of the sharpest confidence declines among major European economies. More dramatically, confidence in the global economic outlook fell to 64% from 69% a year earlier.

In comparison, the CEOs of other major markets are somewhat more optimistic. Worldwide, approximately 79% of executives expect to see business grow in the same period, meaning the pessimism seems to be confined within Germany’s corporate climate.

The Roots of Declining Confidence

Several factors are intertwined to explain the erosion of optimism among German business leaders. The German export-driven economy has been hit hard by disruption to world trade and reduced demand from China, one of Germany’s biggest trading partners. Meanwhile, high energy prices-a legacy of the transition away from Russian gas-continue to squeeze manufacturing and heavy industries, particularly sectors like chemicals, automotive, and steel.

The current transition to green energy and digital transformation has also introduced uncertainty in the short run. While CEOs recognize the need for sustainability investments, many of them raise concerns about the costs and regulatory obstacles that come with such investments. “We are committed to decarbonization,” said one unnamed industrial CEO in the report, “but without a coherent national strategy and stable energy pricing, the risks often outweigh the incentives.”

Structural Shifts in Leadership Focus

The KPMG report also points to a strategic shift in the priorities of leadership: German CEOs increasingly focus on operational resilience, cybersecurity, and AI integration rather than aggressive expansion. About 64% of the responding CEOs said they are prioritizing efficiency improvements over mergers, acquisitions, or major capital spending.

This pivot reflects the broader reality of a business landscape characterized by slowing demand, high inflation, and tight credit conditions. The restrictive monetary policy of the European Central Bank to quell inflation has also made borrowing costlier, which deters investment in innovation and infrastructure.

Another emerging theme is talent retention. Despite a cooling economy, the labor shortage—particularly in technical and digital roles—continues to be one of the biggest obstacles to growth. Almost half of the CEOs surveyed named access to skilled workers as a critical risk factor for the next three years.

Global Competition and Perception Gap

Interestingly, the cautious tone of these German executives contrasts with the optimism of global executives worldwide, particularly those in the U.S. and parts of Asia. American CEOs, buoyed by strong domestic demand and aggressive AI adoption, see the next few years as a period of innovation-led expansion.

The picture is more nuanced for Germany. While its manufacturing base remains solid, many CEOs are concerned that Germany’s competitive advantage is slowly slipping away due to slow regulatory reforms and an unwieldy bureaucracy. “We have the engineering excellence, but we lack speed,” said Roland Busch, chief executive of Siemens, earlier this year. “If Germany cannot translate innovation into market-ready products fast enough, others will.”

The Road Ahead: Resilience and Reinvention

Despite this gloom, analysts believe the fall in confidence could be a good catalyst for reinvention. Many companies are doubling down on AI-driven process optimization, renewable energy investments, and cross-border collaborations to get the momentum back.

The German federal government has also implemented new programs to cut bureaucracy, boost green technologies, and improve digital infrastructure, but it will take some time before the effects are evident. KPMG’s report concludes on a note of caution: even though short-term sentiment is weak, fundamentally German CEOs are resilient, enabled by the pragmatic approach towards global challenges. History has often shown that a phase of low confidence precedes waves of transformation-and the next few years could test whether Germany can once again turn industrial strength into economic renewal. As one CEO participant said, “We’ve seen cycles before. Confidence may be fading now, but German industry is built on adaptation—and that’s our greatest advantage.”