University of Mannheim: Firms scale back investment and hiring in anticipation of energy embargo and further cost pressures

The data from May 2022 shows that more and more companies are reducing their new investments in the course of the Ukraine war: While almost 60 percent of companies in Germany still wanted to make new investments in mid-February, this was only the case for around 40 percent.

In particular, companies that depend on raw materials from Russia, for example because they use natural gas in production, are now taking precautionary measures: companies that use gas directly in the production process or along the supply chain are 21 percentage points less willing to make additional investments than companies Companies that only need gas for heating. “Many companies are already pricing in the fact that bottlenecks in the energy supply can occur in their current decisions. Investments and new hires are falling particularly sharply at these companies, which is paralyzing many companies,” explains Prof. Dr. Jannis Bischof, Chair of Business Administration and Accounting at the University of Mannheim.

Many of those surveyed also plan to increase their prices, reduce payouts and cut bonuses. “In view of the cost explosion that has been ongoing since 2021, which is being fueled in particular by rising energy and intermediate goods prices, companies are looking for alternatives,” comments Dr. Davud Rostam-Afschar, the academic director of the GBP at the University of Mannheim. “At the moment we are mainly observing pronounced price increases, but also adjustments to distributions as a means of reducing cost pressure,” Rostam-Afschar continues.

The extent to which the crisis situation is affecting the future is also reflected in the fact that companies are increasingly cutting spending on research and development. Most recently, 15 percent of those surveyed stated that they wanted to reduce such investments compared to the previous year. Before the outbreak of war, this applied to only 5 percent of companies.

Construction industry is cutting back on new hires
In the construction industry in particular, the mood has turned: Here the respondents stated that they want to cut back on the recruitment of new employees in order to save costs. Even during the corona crisis, the construction industry was among the winners. Now the price increases for raw materials and building materials are having a particularly strong impact here. “Especially small construction companies used to regularly accept fixed-price orders. However, since they cannot initially pass on the higher costs they have in purchasing materials to their customers, many of them are currently carrying out the orders at a loss. This in turn means that they have fewer financial resources available for investments and new hires,” explains Bischof.

The report also shows that fewer and fewer companies approve of a raw materials embargo from Russia: The proportion of supporters has fallen from 52 to 38 percent compared to the second week of the war.

The GBP Monitor: Business trends in May 2022 can be found here .

More information on the GBP Monitor
The German Business Panel surveys more than 800 companies on the business situation in Germany every month and collects data on 1) expected changes in sales, profits and investments, 2) business decisions, 3) the expected probability of default in the industry and 4) satisfaction with economic policy. In addition, there are reports on particularly topical issues every month. This month we asked the companies the following questions, among others: Does the Ukraine war threaten the existence of German companies? How have companies adjusted their business planning since the outbreak of war? And how do you rate a commodity embargo?

Background information on the German Business Panel
The German Business Panel is a long-term survey panel of the DFG-funded national project “Accounting for Transparency” ( ).

The Collaborative Research Center (SFB) “TRR 266 Accounting for Transparency” started in July 2019 and is being funded by the German Research Foundation (DFG) for an initial period of four years. It is the first SFB with a business focus. Around 100 scientists from nine universities are involved in the SFB: University of Paderborn (coordinating university), Humboldt University of Berlin and University of Mannheim, as well as researchers from the Ludwig Maximilian University of Munich and ESMT Berlin, the Frankfurt School of Finance & Management, Goethe University Frankfurt am Main, WHU – Otto Beisheim School of Management, and Carl von Ossietzky University Oldenburg. The researchers examine how accounting and taxation affect corporate transparency; and how regulation and corporate transparency affect business and society. The funding volume of the SFB is around 12 million euros.

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