German Business Confidence Fall For Third Straight Month

Germany’s business confidence weakened for the third straight month in August to the lowest since mid-2020, signaling that the economy is sliding into a recession, survey results from the ifo Institute showed Thursday.

The business climate index fell to 88.5 points in August from 88.7 points in July. This was the lowest score since June 2020 but well above economists’ forecast of 86.8.

Companies were somewhat less satisfied with their current business, and the strong pessimism of their outlook for the coming months was virtually unchanged.

The current situation index came in at 97.5 in August versus 97.7 in July and the expected level of 96.0. Likewise, the expectations index dropped marginally to 80.3 from 80.4 a month ago. The reading was seen at 79.0.

ifo President Clemens Fuest said uncertainty among the companies remains high, and the German economy as a whole is expected to shrink in the third quarter.

The Germany economy is quickly approaching a perfect storm, Carsten Brzeski, an ING economist said. The question is not about whether there will be a recession but rather how severe and how long it will be.

Beating initial estimates, the German economy expanded in the second quarter, underpinned by household and government spending, data released by Destatis showed earlier on Thursday.

Nonetheless, gross domestic product grew only 0.1 percent sequentially, followed by the 0.8 percent expansion in the first quarter. According to the estimate published on July 29, GDP growth was nil in the second quarter.

The ifo survey showed that business confidence in manufacturing was unchanged. While companies assessed their current situation as worse, their expectations were less pessimistic.

In the service sector, the business climate recovered slightly after its drastic plunge in July. Companies assessed their current situation as somewhat better, although their expectations remain pessimistic.

In trade, business sentiment continued its downward slide. Fewer and fewer companies are reporting a positive business situation, and their expectations are still extremely pessimistic.

On the other hand, the business climate in construction improved. Companies assessed their current situation as somewhat better, and their pessimism regarding the coming months has lessened a bit.

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