Geopolitical Shocks and How Firms Adapt
The current military escalation in the Middle East once again highlights these dynamics. As the conflict has expanded and key trade routes have been disrupted, energy prices have risen, and global value chains have come under pressure. The latest GBP Monitor sheds new empirical light on how German firms are navigating these developments.
From Stabilization to Uncertainty
At the start of 2026, economic conditions appeared to be on a positive trajectory. Expectations regarding revenues, profits, and investment were broadly optimistic.
Since the outbreak of the conflict, however, this picture has changed markedly. Firms now report declining profit expectations and scaled-back investment plans, alongside rising uncertainty. These developments are not just a short-term concern, they speak directly to the question of corporate resilience: the capacity of firms to absorb external shocks and adapt to shifting conditions.
Insights from the GBP Monitor
The latest German Business Panel (GBP) Monitor, a continuous large-scale survey of German firms across sectors and size classes, provides new empirical insights into how companies respond to these geopolitical tensions.
The data show that roughly half of firms (49.6%) already report financial burdens related to the conflict. The main drivers are:
- rising energy costs (72.8%)
- increased planning uncertainty (39.0%)
- disruptions to global supply chains (22.8%)
Direct operational disruptions, such as production or sales difficulties in the Middle East, are reported less frequently, suggesting that the effects are being transmitted primarily through costs and expectations rather than direct exposure.
A particularly telling finding concerns hidden reserves. Before the conflict, around one-third of firms were using accounting discretion to build financial buffers. That share has now fallen to approximately 18%, a significant drop that signals these buffers are being depleted.
When Financial Buffers Run Dry
The erosion of hidden reserves has tangible consequences for corporate decision-making. Around 68% of firms plan to raise prices over the next twelve months. At the same time, firms are implementing measures to preserve liquidity:
- reducing dividend payouts (46.1%)
- cutting bonuses (38.5%)
- lowering fixed costs, including through workforce reductions (34.6%)
Notably, nearly one in five firms is considering cuts to research and development. This highlights a central trade-off: short-term stabilization may come at the cost of long-term innovation capacity, a well-known dilemma in times of economic stress. If the conflict persists beyond six months, firms expect average sales prices to rise by approximately 9.9%.
Adjustment Pressure and Policy Expectations
As economic conditions deteriorate, pressure on policymakers is mounting. Firms' satisfaction with German economic policy was already low before the conflict and has declined further since, particularly among those directly bearing financial burdens.
The policy demands are clear: beyond short-term relief for energy costs, firms are calling for structural improvements in business conditions. Tax relief emerges as the primary demand and is cited even more frequently than direct energy support measures. At the same time, support for the EU’s Omnibus Initiative, which aims to reduce reporting and documentation requirements, continues to grow. This should be interpreted less as a fundamental rejection of regulatory objectives and more as a reflection of increasing structural burdens associated with bureaucracy and reporting obligations.
What This Tells Us
The findings of the latest GBP Monitor illustrate that geopolitical shocks go well beyond short-term cost increases. They penetrate the financial structure and strategic flexibility of firms: hidden reserves dwindle, room for maneuver narrows, and the resulting adjustments carry potential long-term consequences for innovation capacity and competitiveness.
The results demonstrate how closely financial structures, corporate decisions, and policy expectations are interconnected and underscore the value of evidence-based analysis for understanding how firms respond when the ground shifts beneath them.