Germany’s business sentiment fell in June as analysts urged Europe’s largest economy to be more likely to be shaken by stagflation as headwinds from looming natural gas shortages and rising prices lost confidence.
Ifo’s Business Environment Index, which is attracting attention, Released on June 24th“The sentiment for German business has clouded,” said Clements Fest, president of the Ifo Institute for Economic Research, showing a decline in the current situation gauge and a sharp drop in positive indicators.
The current component of the index fell from 93.0 points in May to 92.3 points in June. The forward-looking gauge dropped sharply from 86.9 in May to 85.8 in June, and Fuest states that German corporate sentiment about the future has become “significantly pessimistic.”
“It doesn’t get clean”
German officials say Russia could further curb natural gas shipments amid tensions over the war in Ukraine, raising the prospect of Germany’s energy distribution and price spikes as peak demand winter heating season approaches. I’m afraid that there is.
“If you have a very cold winter and you are careless and too generous with gas, it won’t be clean,” said Klaus Mueller, head of the Federal Network Agency. Interview Public broadcasting ARD.
Germany raised its gas risk level to the “warning” stage on Thursday. This is the second highest alert level below the final “emergency” stage due to heightened concerns about the safety of the gas supply.
Confidence’in the realm of a clear recession’
Economists warn that if Russia’s gas flow to Germany is reduced, this will push up manufacturers’ energy costs and force them to cut production.
“The German economy will not surely plunge like it did during the 2020 blockade,” said ING’s Macrokarstem Bruzeski Global Head. I wrote in a memo.. “But consumer confidence is already in a clear recession territory, and today’s Ifo and yesterday’s PMI measurements both suggest that manufacturing is rapidly following. increase.”
“The soaring energy prices and the looming gas shortages have caused great concern for the German economy,” Ifo said the index’s manufacturing industry was “hit hard.”
Mr Fust said the German chemical industry, which relies heavily on Russian gas, is particularly stressed.
“The chemical industry is on the alert,” he said.
Stagflation “base case”
In an interview with Bloomberg Television on Friday, Ifo’s chief said, “The possibility of a recession is clearly increasing.”
“There is a lot of pessimism about the gas situation,” he added.
ING’s Brzeski said his team’s expectations for Germany are a combination of low growth and high inflation.
“The rest of this year’s stagflation is a basic scenario for the German economy, and a complete recession is our risk scenario,” he said.
“A June weak Ifo reading should remind everyone that the German economy is feeling the full economic impact of the war in Ukraine, broader supply chain friction, and higher inflation.” Brzeski added.
The consumer price index in Germany reached 8.7% annually in May, but the Producer Price Index (PPI), which is an indicator of the input cost of companies, is Soars by That month’s 33.6 percent was a record high.
German consumers are preparing for even higher inflation, as at least some business input costs tend to be passed on to end users in the future.