Although the German economy can still grow slightly in the second quarter, the mood in companies is now declining. In the face of great stress and uncertainty, the business climate is worse than it has been since 2020.
The mood in the German economy deteriorated in August for the third month in a row. She's the worst she's been in over two years. The IFO business climate fell by 0.2 points to 88.5 points in a monthly comparison, as the IFO Institute in Munich announced. This is the lowest level since June 2020. However, analysts had expected a clearer deterioration to 86.8 points.
After the German economy was able to grow slightly in the second quarter, experts expect economic output to shrink from the third quarter. The companies surveyed continue to be pessimistic about their expectations for business in the coming months. The corresponding index value slipped, albeit only slightly by 0.1 points to 80.3 points. The current situation was also rated only slightly worse than in July. Here the index value fell by 0.2 points to 97.5 points.
The IFO business climate is Germany's most important economic early indicator and is based on a survey of around 9,000 companies. In detail, the business climate in the retail sector deteriorated significantly. In industry, the corresponding sub-indicator remained stable in August, while it improved somewhat for construction. "The mood in the German economy is bad," said IFO President Clemens Fuest, summarizing the data. He spoke of a high level of uncertainty among companies. According to Fuest, German economic output is likely to shrink in the third quarter.
Chief economist Jörg Krämer from Commerzbank referred to the material shortages in the German economy, which he believes have eased recently. This has stabilized the IFO index somewhat. Nevertheless, the economist is firmly assuming that economic output will shrink in the coming months.
According to Thomas Gitzel, chief economist at VP Bank, the German economy is on the verge of a recession. He referred to the sharp rise in electricity and gas prices, which are a burden for consumers and entrepreneurs alike. "How long the economic contraction lasts will depend crucially on further developments on the energy markets," said the expert.
