According to Clemens Fuest, President of the Ifo Institute for Economic Research, Germany’s economy is “deeply sinking into crisis” as production declines and business sentiment grows increasingly pessimistic.
On August 26th, the Ifo Institute (Germany) released its Business Climate Index for August, which fell to 86.6 points, a slight decrease from the previous month. This marks the third consecutive month of decline, further diminishing hopes for a recovery in Europe’s largest economy.
“Germany’s economy is sinking deeper into crisis,” remarked Ifo President Clemens Fuest.
The Ifo survey, conducted monthly among approximately 9,000 business leaders, indicates not only a drop in the business climate but also in the assessments of current conditions and future expectations, reflecting a growing sense of pessimism among companies.
“Germany’s economy is caught in a state of high inflation coupled with sluggish growth,” noted Klaus Wohlrabe, an economist at Ifo. Across all sectors, from manufacturing to services, there is a lack of orders, weak investment, and consumers are hesitant to spend due to inflation concerns.
Wohlrabe predicts that Germany’s GDP could contract even more sharply in the third quarter. In the previous quarter, the economy managed a meager 0.1% growth. Meanwhile, inflation accelerated to 2.3% in July.
“There is currently little reason for optimism,” said Elmar Voelker, an economist at LBBW bank. He cited a series of challenges, ranging from global economic instability and geopolitical risks to the upcoming U.S. Presidential election in November. These factors make it difficult for businesses to anticipate any macroeconomic improvement this year.
Thomas Gitzel, Chief Economist at VP Bank, echoed this sentiment, observing that the economic recovery “is not happening at present.” He added, “Germany’s economy remains caught between the edge of recession and negligible growth.
The Ifo survey results align with the August Purchasing Managers’ Index (PMI). According to the PMI, Germany’s manufacturing activity contracted for the second consecutive month, falling more sharply than expected to 42.1 points. A PMI below 50 indicates a contraction in production.
Recent data suggest that Germany’s economy is likely to experience weak growth in the third quarter. Last week, the Bundesbank (Germany’s central bank) stated that while the country is not officially in a recession, the outlook remains bleak.
Last year, Germany was the worst-performing major economy globally, with GDP shrinking by 0.3% amid persistent inflation, high energy prices, and weak foreign demand. This was the first time since the Covid-19 pandemic that the country experienced negative growth.
