The Federation of German Industry (BDI) says trade deals worth billions are in jeopardy if no deal is struck.
It urged Theresa May and the remaining 27 EU leaders to agree a “status quo” transition period after Brexit next year.
“Otherwise, some companies will be forced to bring their contingency plans into focus for the worst-case scenario, which no one wants and which will damage everyone,” said BDI director Joachim Lang.
He said the “negative effects” of Brexit were already apparent and cited the fact that the UK had already dropped from Germany’s second- to fifth-most-important trade partner.
Creating a frictionless trade agreement remains the single biggest challenge for the UK as politicians have already ruled out remaining in the EU customs union.
And the issue of the Irish Republic’s border with Northern Ireland also remains a thorny issue.
The EU says Northern Ireland must stay in a customs union with the rest of the bloc if no better way is found to avoid a hard Irish border — which Britain rejects.
“As long as the UK doesn’t present such a solution, it is very difficult to imagine substantive progress in Brexit negotiations,” EU Council President Donald Tusk said last week.
BDI chief Lang said: “The minimum requirement for German companies is trade in goods without customs duties or quotas, ideally in a customs union.”