Germany’s business confidence deteriorated to the lowest since mid-2020, adding to the fear of recession, survey results from the ifo Institute showed Monday.
The business confidence index fell to 88.6 in July from a revised 92.2 in June. The score has reached its lowest value since June 2020 and was below economists’ forecast of 90.2.
Companies were expecting business to become much more difficult in the coming months. They were also less satisfied with their current situation.
Higher energy prices and the threat of a gas shortage are weighing on the economy, Ifo President Clemens Fuest said. Germany is on the cusp of a recession.
The current situation index slid to 97.7 from 99.4 in June and remained below economists’ forecast of 98.0.
At the same time, the expectations index fell more markedly to 80.3 in July, the lowest since April 2020, from 85.5 in the previous month. The expected score was 83.0.
The message from the Ifo survey is clear: the outlook is deteriorating, and fast, Capital Economics economist Jessica Hinds said. The economist said Germany looks set to fall into a deeper recession than most in the coming months.
Today’s Ifo index illustrates that the list of downside risks for the German economy is getting longer and longer, Carsten Brzeski, an ING economist said. A further escalation in the energy crisis will remain a key risk for the economy going into the winter.
The survey showed that business climate in manufacturing weakened sharply in July as pessimism regarding the coming months hits its highest level since April 2020.
In the service sector, the business climate worsened substantially. The collapse was particularly pronounced in companies’ expectations.
Likewise, the indicator again nosedived in trade. Firms were less satisfied with their current situation and increasingly concerned about the coming months. Following a brief recovery in the previous month, the business climate in construction again deteriorated notably.
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