Germany’s ‘bleak’ economy is now ‘treading water’ with key business confidence barometer sliding for the fifth time in a row – days after country’s production fell for third straight month
German’s ‘bleak’ economy is now ‘treading water’ after business morale deteriorated for a fifth month in a row, amid mounting fears of double-dip recession.
While business sentiment fell less than expected in September, a key survey on Monday showed it was a fifth consecutive decline, days after the country’s production was revealed to have fallen for a third straight month.
It comes as Europe’s biggest economy struggles to recover from a recession.
The Ifo institute’s closely watched confidence barometer, based on a survey of 9,000 companies, ticked down to 85.7 points from 85.8 the previous month.
Analysts surveyed by financial data company FactSet had expected a sharper fall, at 85 points, a small positive for the ‘sick man of Europe’.
German’s ‘bleak’ economy is now ‘treading water’ after business morale deteriorated for a fifth month in a row, amid mounting fears of double-dip recession. Pictured: German Chancellor Olaf Scholz delivers a speech in Hamburg, September 25
But ‘sentiment in the German economy remains bleak,’ said Munich-based Ifo president Clemens Fuest. ‘The German economy is treading water.’
The survey found that companies were slightly less pessimistic than in August about the outlook for the months ahead, but more downbeat about their current business situation.
The mood was especially grim in the construction sector where the confidence index slumped to its lowest level since 2009, as higher interest rates and soaring costs for materials take their toll on the housing market.
Germany’s crucial manufacturing sector, hit hard by weaker demand from abroad and elevated energy costs, also stayed pessimistic as order books shrank further.
The Ifo reading is the latest in a series of gloomy data for the German economy, which sank into a recession at the start of the year and stagnated in quarter two.
The European Commission earlier this month said it now expects the German economy to contract by 0.4 percent this year, compared to a previous forecast of 0.2 percent growth – as industrial production fell for a third straight month in July.
Output decreased by 0.8 percent compared with the month before, according to seasonally adjusted figures from statistics agency Destatis, following a 1.4 percent drop in June.
By comparison, June estimates say the UK recorded a rise of 1.8 percent in production output, the country’s strongest monthly grown to the Index of Production (IoP) since August 2020, when a rise of 1.9 percent was recorded.
While business sentiment fell less than expected in September, a key survey on Monday showed it was a fifth consecutive decline, days after the country’s production was revealed to have fallen for a third straight month. Pictured: A car factory in Dresden
Also in September, a German economic research group announced that it was sticking with its prediction of negative GDP growth for Germany in 2023.
The International Monetary Fund has forecast that Germany will be the only major advanced economy to shrink in 2023.
The Ifo institute’s head of surveys, Klaus Wohlrabe, said a third-quarter contraction was likely, following stagnation in the second quarter.
The German economy is seen at risk of sliding into its second recession in a year after shrinking in the last quarter of 2022 and the first quarter of 2023.
‘German businesses, as well as politicians and the entire economy, are gradually getting used to the idea that the economy is in for a longer period of subdued growth,’ ING’s global head of macro Carsten Brzeski said.
He said the Ifo reading showed an unchanged economic picture, with the Chinese economy still not gaining momentum, high interest rates weighing on activity and continued policy uncertainty regarding the energy transition.
Companies were less satisfied in September than in the previous month with their current business situation, with the sub-index falling to 88.7 in September from 89.0 in August.
‘The Ifo confirmed that the German economy is extremely weak,’ Capital Economics senior Europe economist Franziska Palmas said.
The European Commission earlier this month said it now expects the German economy to contract by 0.4 percent this year, compared to a previous forecast of 0.2 percent growth – as industrial production fell for a third straight month in July
The current conditions index, which has a better relationship with gross domestic product than the business climate index, now points to output falling by around 1% quarter-on-quarter, Palmas said.
‘With household real incomes set to flatline over the coming quarters, and industry and construction firms facing a sharp drop off in new orders, we expect a further fall in GDP in the fourth quarter,’ she said.
Companies’ pessimism regarding the coming months dissipated slightly, however, with the expectations sub-index recovering slightly, to 82.9 from 82.7 in the previous month.
Sentiment among German managers darkened further in services and construction, while it rose in manufacturing and trade, the survey showedT
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