Germany news: Reform row raises fears for Merz's coalition

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Germany's emerging economic recovery remains fragile despite an improving outlook, the country's foreign trade association BGA has warned.

A BGA survey found companies reporting improved business conditions after diversifying supply and distribution routes and adapting to recent crises. However, many firms said red tape was hampering their operations.

"Companies can see light at the end of the tunnel again, but they are still driving with the handbrake on," BGA President Dirk Jandura said.

Leading German economic institutes have raised their growth forecast for this year to 1.3%, up from 0.6% in their spring forecast. The government is also expected to raise its forecast next week.

Debt-financed government spending on infrastructure and defense is a major driver of the expected growth.

Jandura said bureaucracy remained a significant drag, with 82% of companies surveyed naming it as one of the biggest obstacles to competitiveness and 78% saying they had yet to notice any reduction in red tape.

The improvement has also yet to reach the labor market, according to BGA, with more companies in the sector planning to cut jobs than create them.

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