The mood in the German economy unexpectedly deteriorated sharply in June. According to ifo boss Fuest, it is mainly due to the weak industry that the pessimism in the boardrooms is increasing.
The mood in the German economy has continued to deteriorate significantly in the current recession. The ifo business climate fell surprisingly sharply in June to 88.5 points from 91.5 points in the previous month. as the Munich Economic Research Institute announced today in its survey of around 9,000 executives. It is the second decline in a row.
“The weakness in industry in particular is putting the German economy in difficult waters,” said ifo President Clemens Fuest. Managers were more skeptical about their current business and their prospects far more unfavorable than before.
“Hardly a bright spot”
In the manufacturing sector, the business climate has clouded over considerably, according to ifo boss Fuest. Expectations have fallen to their lowest level since November 2022. “Hardly any industry could escape this development.” The current situation is also rated less well. “Meanwhile, many companies judge their order backlog as too low.”
There are hardly any rays of hope, ifo economic expert Klaus Wohlrabe told the Reuters news agency. “The worldwide interest rate increases are dampening the demand for goods ‘Made in Germany’.” The business climate index also fell in the service sector, trade and construction.
Stagnation or recession?
The German economy shrank at the end of 2022 and beginning of 2023 compared to the previous quarter. At the end of 2022, gross domestic product (GDP) in Germany fell by 0.5 percent and by 0.3 percent in the first three months of the current year. Experts speak of a recession when economic output shrinks for two consecutive quarters. According to this definition, the eurozone is also in recession.
The head of “Wirtschaftswise”, Monika Schnitzer, is largely assuming stagnation in Germany for the current year. “Growth will be plus/minus zero,” said the government adviser and chairwoman of the council of experts recently. There will probably be a recovery from the second half of the year. “It depends on China.” However, the interest rate increase course of the European Central Bank is increasingly affecting the economy and is slowing down the economy.
Still too much optimism?
Jörg Krämer, chief economist at Commerzbank, is more skeptical. “We feel confirmed in the forecast that the German economy will shrink again in the second half of the year. Many economists are still too optimistic about the economic forecasts. They are likely to lower them further.”
The assessment of Alexander Krüger, chief economist at Hauck Aufhäuser Lampe Privatbank, sounds just as pessimistic: “The gloomy assessment of the situation shows that nothing can be expected in terms of growth for the time being. The drop in expectations conveys the feeling of an apocalyptic mood. The survey increases economic skepticism again,” says the expert . This is also due to the fact that the weak global economy is not helping the economy.
Since the strains of the European Central Bank’s restrictive monetary policy are yet to come, new adversity is imminent, says Krüger. “Political impetus is urgently needed to change the mood, especially on the energy issue.” Analyst Jens-Oliver Niklasch from LBBW states: “We are in the middle of a recession.”