Germany’s most important leading indicator, the ifo index, does not bode well: the mood in the management ranks deteriorated further at the beginning of the year. This means that the negative signals for the German economy are increasing.
The fresh ifo business climate index is a big surprise – but not a pleasant one: the mood in the executive suites of the German economy surprisingly deteriorated at the beginning of the year. The ifo business climate fell to 85.2 points in January from 86.3 points in the previous month, as the Munich institute announced today in its survey of around 9,000 managers. Economists, on the other hand, had expected an increase to 86.7 points.
economic trend points downwards
Companies assessed their current business situation and their prospects for the coming months worse than before. The sub-index for the business situation fell from 88.5 points in December to 87.0 points in January. Business expectations fell from 84.8 to 83.5 points. “The German economy is stuck in recession,” said Ifo President Clemens Fuest.
Jörg Krämer, chief economist at Commerzbank, was also concerned: “The significant decline in the ifo business climate marks a bad start to the new year.” The second consecutive decline in the Ifo business climate disappointed the hopes of all those who had hoped for an upswing signal after the mood had improved in the autumn. The trend is still downwards. “There is a worm in the economy at the moment,” sums up economist Jens-Oliver Niklasch from LBBW.
Numerous negative signals for the economy
The ifo index is the most important leading indicator for economic development in the Federal Republic. But other leading indicators don’t bode well either. The purchasing managers’ index for the entire German private sector – industry and service providers together – fell by 0.3 points to 47.1 points in January. This means that it moved further away from the growth threshold of 50 points.
Added to this are the falling incoming orders and falling industrial production: industrial production recently fell for the sixth month in a row – the last time there was a similarly long negative series was in 2008 during the financial crisis. Experts such as Commerzbank chief economist Krämer therefore expect the gross domestic product to shrink again in the first quarter.
Is Germany slipping into a “technical recession”?
According to an initial estimate by the Federal Statistical Office, German economic output shrank by 0.3 percent in the fourth quarter. If the gross domestic product (GDP) also fell in the first quarter, Germany would slip into a so-called “technical recession”.
According to its recently updated forecast, the Ifo Institute expects GDP growth of just 0.7 percent for the entire year of 2024 – also slowed by the federal government’s austerity measures. However, some economists are much more pessimistic than the Ifo Institute and expect German economic output to shrink in the current year.