The mood in German executive suites continues to deteriorate. The ifo business climate, the most important German economic indicator, has fallen again. This points to shrinking economic performance.
In September, the mood in the German economy also fell surprisingly sharply. The ifo business climate index fell to 85.4 points after 86.6 points in August, the Munich-based economic researchers said in their survey of around 9,000 managers. This was the fourth decline in a row and the lowest level since January.
Economists surveyed by the Reuters news agency had only expected a decline to 86.0 points. Companies assessed both their current business situation and their prospects for the coming months more pessimistically than recently.
“On the verge of a downward spiral”
“The German economy is coming under increasing pressure,” said ifo President Clemens Fuest. “The core sectors of German industry are in difficulties.” In view of the gloomy outlook and a worsening lack of orders, the ifo index in the manufacturing sector fell to its lowest level since June 2020, when the Corona crisis slowed the economy.
Managers in the service sector and in trade also became more pessimistic. “The German economy is on the verge of a downward spiral,” said ifo economic expert Klaus Wohlrabe. The only bright spot is the construction industry, where the sentiment indicator has risen, according to the economic researchers.
At best stagnation in the second half of the year
The significant decline in the ifo index was a “cold shower” and the important barometer is now clearly trending downwards again, said Commerzbank chief economist Jörg Krämer. German gross domestic product is likely to stagnate at best in the second half of the year and hardly grow in 2025 either.
From the perspective of Dekabank chief economist Ulrich Kater, both consumers and companies are feeling uncertain. He sees the reason for the gloomier mood in the recent bad news from important German companies, “divisive politics” and low foreign demand.
Meanwhile, the IMK Institute, which is close to the unions, slightly lowered its economic forecast and now only expects the economy to stagnate in 2024. Next year, growth will be 0.7 percent, which is slower than previously thought. “In this situation, we need a change in economic policy in Germany with extensive and continuous investments in renewable energies, networks, transport infrastructure and education, among other things,” said IMK Director Sebastian Dullien.
Recession in sight
Most recently, the survey of purchasing managers for the local private sector had already dampened hopes for an upturn: S&P Global’s leading indicator slipped even further below the growth threshold of 50 points in September.
The new data makes a recession this year more likely. After an increase of 0.2 percent at the beginning of the year, German gross domestic product (GDP) shrank by 0.1 percent from April to June compared to the previous quarter due to falling investments. According to the Bundesbank, the economy could stagnate or shrink slightly again in the current summer quarter. If there are two negative quarters in a row, experts speak of a technical recession.