German banks tighten corporate credit as recession risk rises

German lenders are tightening credit conditions for mid‑size companies, applying stricter credit‑worthiness checks and heightened scrutiny of cash flows. A FINANCE Think Tank survey shows banks are more cautious, with a rise in covenant breaches and a shift by firms toward alternative financing. Investment intentions have fallen, with over 70 % of surveyed corporate‑banking clients reporting reduced willingness to invest.

At the same time, the German Institute for Economic Research (DIW) has cut its 2026 growth forecast to just 0.5 % and foresees a slight contraction in the second and third quarters. The institute links the outlook to higher oil and gas prices stemming from the Iran‑related conflict, projecting inflation of about 2.9‑3.0 % and an unemployment rate climbing to roughly 6.4 % in 2026. DIW criticises the extension of a fuel‑tax rebate, calling it costly and not targeted at low‑income households.