According to the Ifo Institute for Economic Research, confidence in German companies plummeted in July, and current and future sentiment indicators plummeted.
The German Institute for Research Policy said on July 25 that the comprehensive index fell to 88.6 points in July, down from 92.2 points in June to the lowest since June 2020.
The ifo Business Climate Index is based on a survey of approximately 9,000 managers from various manufacturing and service industries in Germany.
In a statement, Ifo Institute for Economic Research President Clements Fest said German companies were less confident about the current situation and expect the business to be “much more difficult” in the coming months.
“Rising energy prices and the threat of gas shortages weigh heavily on the economy,” Festo said. “Germany is on the verge of recession.”
Total pessimism
C The gauges of the various business units that make up the overall confidence index have all deteriorated.
The factory index has “slumped” as manufacturing pessimism has risen to its highest level since April 2020, Festo said.
The mood in the tourism and hospitality industry, which was hit by optimistic waves at the beginning of the tourism season, also deteriorated, and the gauge of the service sector “significantly deteriorated.”
The construction industry’s morale has “significantly deteriorated”, future expectations have shown “deep pessimism”, and the current portion of the index has fallen to its lowest level since April 2016.
Trade indicators have also “slumped,” Festo said, saying that all German retail sectors are pessimistic about the future.
Germany’s GDP forecast downgraded
The International Monetary Fund (IMF) has lowered expectations for GDP growth in European economies amid rising energy prices and inflation, and Germany’s economic outlook has deteriorated in the eyes of international organizations and analysts. I am.
The IMF said in early 2022 that the German economy was showing signs of overcoming the problems that were restraining economic growth the previous year. Recent notes..
“The supply bottleneck that was blocking manufacturing has been eased and the service has been reopened as the country emerged from the harsh winter waves of the Delta variant,” the agency said.
But that changed after Russia invaded Ukraine and the energy markets were disrupted as Western nations imposed sanctions that hurt their economies.
“Rising energy prices and inflation have weakened consumer confidence and weakened foreign demand for German exports,” the IMF said.
The IMF has downgraded Germany’s GDP forecast for 2022 from 2.1% to 1.2%. The situation in 2023 looks even darker. The IMF in April expected growth of 2.7%, but is now forecasting 0.8%.
“Uncertainty is very high, the risk to baseline growth forecasts is distorted downwards, and the risk to inflation forecasts is distorted upwards,” the IMF wrote. Bespoke..
Germany’s inflation rate was 8.2% annually in June, down from 8.7% in May, according to the Federal Bureau of Statistics.
The biggest factor is energy prices, which rose 38% annually in June.
“More recession signals”
ING analysts said a disastrous reading of corporate confidence confirmed concerns that Germany’s economy could have shrunk in the second quarter.
“Today’s Ifo index shows that the list of downside risks in the German economy is getting longer and longer,” said Carsten Brzeski, Global Head of Macro at ING Research. Said in a memo..
The “more recession signal” was Brzeski’s top-line takeaway from a series of pessimistic readings of confidence gauges.
Brzeski said ING analysts are aware of “downward risks rather than upside risks to the outlook,” and said the biggest risk is the disruption to Germany’s energy supply.
“Currently, as a result of the ongoing war in Ukraine, the German economy is driven into a technological recession in a base case scenario where supply chain friction continues, there is uncertainty and energy and commodity prices are high.” Writes Brzeski.
Germany’s economy grew 2.9 percent in 2021.
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Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communication, and adult education. The best writing advice he has ever heard is from Roy Peter Clark.