Concerns about the economy are growing: the ifo business climate fell in August for the fourth time in a row. Pessimism is growing in the German executive floors.
The mood in the executive floors of the German economy clouded over again in August and is worse than it has been since October 2022. The ifo business climate fell to 85.7 points from 87.4 points in the previous month and thus for the fourth time in a row, as the Munich ifo institute announced in its survey of around 9,000 executives. Experts had expected a smaller decline.
After three consecutive declines in the ifo index, economists speak of an economic turning point towards economic weakness. “The dry spell in the German economy is getting longer,” said ifo President Clemens Fuest. The assessment of the current business situation fell to the lowest level since August 2020. The companies also assessed the prospects more skeptically.
Breathing space before falling back into recession?
According to the ifo Institute, the key leading indicator in the manufacturing sector slipped into negative territory for the first time since October 2020. The companies complained about fewer and fewer new orders. The business climate has also cooled noticeably in the service sector. “The weakness of the industry is also pulling transport and logistics down,” says Fuest. In the construction industry, the indicator has also continued to slide.
“The recent fall in the ifo business climate index is like a kick in the stomach,” said Thomas Gitzel, chief economist at VP Bank. The backlog of orders in industry that built up during the corona pandemic has been reduced, and private households are still being forced to save because of inflation. “But if neither industry nor private households are expected to provide any impetus, the German economy will likely continue to be in trouble.”
There is increasing evidence that the stagnation in economic output in the spring was “just a respite before falling back into recession,” emphasizes analyst Elmar Völker from Landesbank Baden-Württemberg. “With the fourth decline in a row, the ifo business climate is now sending out a very clear recession signal,” agrees Commerzbank economist Jörg Krämer. For the second half of the year he expects “more than ever a shrinking of the German economy”.
Stagnation in the second quarter
The economy had shrunk in late 2022 and early 2023 and was only flat in the spring. The Federal Statistical Office today confirmed the stagnation in the second quarter. The economy was thus able to stabilize somewhat after the slight declines in the two previous quarters. However, the hoped-for spring revival did not materialize and the prospects for the coming months remain weak.
The Bundesbank assumes that the economy will remain at the same level in the current summer quarter. Many experts even expect a decline in gross domestic product (GDP) for 2023 as a whole: the state development bank KfW, for example, expects minus 0.4 percent.
Data on the purchasing managers’ index have recently heightened concerns that the weak situation in industry could spread even more to service providers. In view of the difficult environment, it is questionable where a change in mood should come from, says Bastian Hepperle from Bankhaus Hauck Aufhäuser Lampe.