Germany is facing an economic slump. Fear of an impending gas shortage and rising energy prices are weighing heavily on companies. A lack of staff, historically unique supply problems with raw materials and preliminary products and inflation at a record high are also depressing the mood. The Ifo business climate, the most important leading economic indicator, slipped from 92.2 points in June to 88.6 points, as the institute announced on Monday. This is the lowest level since June 2020.
"Germany is on the threshold of recession," commented Ifo President Clemens Fuest. Especially since the business climate has deteriorated in all economic sectors considered, and significantly so: In industry, pessimism about the future is greater than it has been since the beginning of the corona crisis, the Ifo boss emphasized: “This runs through almost all industrial sectors.”
The mood among service providers turned again after great optimism, including in the tourism and hospitality sectors. The travel industry and restaurants started the summer with high expectations after the relaxation of the corona restrictions. Especially since the Germans had saved a lot of money during the pandemic and showed great consumerism in the spring.
But the chaos in air traffic and the unreliability of Deutsche Bahn are already badly affecting the tourism industry again. The record inflation is also noticeably dampening the population's willingness to spend. Which is also increasingly worrying the retail and hospitality sectors. As the Ifo index shows, expectations have plummeted across the entire service sector.
And trade is also signaling growing concerns. No retail sector is more optimistic about the future, emphasize the Ifo economic researchers. Rather, the worry lines with a view to the coming months would become deeper and deeper.
However, it is not only the prospects for the coming months that are increasingly gloomy in the executive floors of local companies. According to the Ifo survey, the current situation has already deteriorated in many places. This is fading hopes that the German economy could return to its pre-corona level later this year after the deep slump in 2020.
Because the Russian war of aggression, with its serious economic consequences, brought the recovery process in this country to an abrupt end. The former world champion in exports, Germany, even recorded a trade deficit for the first time in decades, meaning it imported more goods and services than it exported.
Instead of the hoped-for upswing, the country is now threatened with stagnation or, in the worst case, a renewed contraction in economic output. The industry is already reporting the first drop in orders in two years.
Many sectors such as the chemical industry or large parts of the metal and electrical industry are energy-intensive and have therefore already been hit hard by the price increase. The ongoing supply problems are still having a severe impact on the industry, and most companies do not expect the situation to ease until next year. At the construction site, the atmosphere is also bad.
Inflation is hitting more and more in Germany and driving up the prices for energy and building materials, while building interest rates are rising at the same time, says Felix Pakleppa, general manager of the German Construction Industry Association. Construction orders in May fell by 7.5 percent compared to the same month last year. From January to May, the minus was 1.7 percent in real terms. "The prospects are bleak," complains Pakleppa.
The plans of the traffic light coalition for the accelerated expansion of renewable energy, climate protection in the building sector and the ambitious housing construction figures mean major tasks for the construction industry. But in view of the growing shortage of skilled workers, experts warn against overly high expectations. The workers to install all the wind turbines, solar roofs or heat pumps are not available.
And new residential construction has so far also been far lower than the federal government had targeted. Lack of staff is also a huge problem in the hospitality industry and at airports. Flights are canceled and opening times shortened because no new employees can be found quickly. The shortage of skilled workers is becoming a brake on growth in more and more industries. And in view of the demographic development, this problem will become even greater in the longer term.
At the moment, however, the German economy fears more than anything else Putin's power games over gas. The massive slump in the Ifo business climate reflects above all the fear of German companies of a gas crisis, says Jörg Krämer, chief economist at Commerzbank. Like the purchasing managers' index, the Ifo business climate clearly points to a downturn in the German economy, the economist fears: "Unfortunately, how bad it gets in the end is mainly in Putin's hands."
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