Status: 10/25/2022 11:29 am
The mood in the German economy has deteriorated again. Economists had expected a stronger downturn. Nevertheless, the economic barometer slipped to its lowest level since May 2020.
In view of the energy crisis and fears of recession, the mood in the executive floors of German companies deteriorated further in October – albeit only slightly. The ifo business climate index fell by 0.1 points compared to the previous month to 84.3 points, as the Munich ifo institute announced today in its survey of around 9,000 executives. Economists polled by Reuters had expected a sharper drop to 83.3 points.
Those surveyed rated their business situation 0.4 points worse, but looked to the future with less bleakness than last time. “Nevertheless, companies are looking to the next few months with concern. The German economy is facing a difficult winter,” said ifo President Clemens Fuest.
Lowest level since the beginning of the corona pandemic
In August, the most important German economic barometer was still at 88.6 points. With the current damper, it has now slipped to its lowest level since May 2020, even if the minus was only minimal. “A somewhat unexpected stabilization,” describes Jens-Oliver Niklasch from LBBW. “One almost wonders what could have slowed the free fall of the business climate. But there was only a small ray of hope with the extension of the lifespan of the nuclear power plants.” The executives of the companies rated the prospects even slightly better: the expectations rose from 75.3 to 75.6.
Economists point to a slight easing of the supply chain problems, recently falling gas and electricity prices and the planned energy price brakes. “Apparently the 200 billion ‘boom’ from the federal government has stabilized the business expectations of companies,” explains Fritzi Köhler-Geib from the state development bank KfW. They would also have noticed that the probability of a gas shortage has shrunk thanks to full storage and good savings.
“The current value of the business climate will not change the looming recession. In the coming months, a further downturn is more likely than an increase,” says LBBW specialist Nicklasch. Commerzbank chief economist Jörg Krämer sees it similarly: “The fact that the ifo business climate did not fall any further in October is not an all-clear. Because the business climate had literally collapsed in the previous month.” The trend is clearly pointing downwards: “I continue to expect that the German economy will shrink in the winter months.”
GDP data on Friday provide information on development
The generally still gloomy picture in the economy fits the assessment of the Bundesbank, which sees Germany on the brink of recession. She understands this to mean a clear, broad-based and long-lasting decline in economic output. High inflation and uncertainty about the energy supply are weighing on the German economy.
According to the currency watchdogs, gross domestic product could already have stopped growing in the past summer quarter. According to the Bundesbank’s economists, it will probably fall significantly in the winter half-year that has just begun. In his autumn forecast, Federal Economics Minister Robert Habeck (Greens) also expects a recession by 2023 at the latest.
For the data on gross domestic product (GDP) in the third quarter, which is due on Friday, experts polled by Reuters expect economic output to fall by 0.2 percent. In the spring, GDP only showed mini growth of 0.1 percent.
ifo expects difficult times for the economy
The ifo Institute assumes that GDP will finally shrink by 0.6 percent in the current fourth quarter. “The winter recession is coming,” Klaus Wohlrabe, head of ifo surveys, told Reuters. Almost two thirds of the companies would still suffer from delivery bottlenecks.
“Retail remains a problem child,” said the expert on the October survey. Expectations there have once again fallen to a record low. “There is a great concern that customers will stay at home because of inflation.” The rate of inflation was recently ten percent, which gnawed at the purchasing power and consumer spending mood. According to the survey, about every second company plans to raise its prices in the next three months.
“The mood has also deteriorated significantly in the hospitality industry,” explained Wohlrabe. Inflation, fueled by expensive energy as a result of the Russian war against Ukraine, also plays a role there – but possibly also the growing fear of a new corona wave. Things are also going badly for the construction sector. “He’s been plagued by cancellations, so the mood continues to somber.” Credit and material costs also increase.