Germany’s most important business confidence index recorded an unexpected dip in the optimism of businesses in June, adding to a recent string of bad luck befalling the German economy.
The ifo Index is Germany’s most important index for business confidence, based on a monthly survey of businesses.
In June, the index dropped for the second time in a row, from 91.5 to 88.5, the ifo Institute for Economic Research, which publishes the index, announced on Monday. Values below 100 indicate a negative economic situation.
“Above all, the weakness in the manufacturing sector is steering the German economy into turbulent waters,” said Clemens Fuest, president of the ifo Institute.
Business leaders were more pessimistic regarding both their assessment of the current situation and their expectations for the six months ahead, and confidence in the manufacturing sector fell to its lowest level since November 2022.
Fuest explained that uncertainty over energy supplies in the winter ahead and reduced demand for goods as consumers are facing tighter budgets were the primary explanation for the manufacturing industry’s weak performance.
The German economy is currently in a technical recession, as its GDP has shrunk in the previous two quarters.
According to the Institute, the development of German business confidence has now clouded the prospects of a recovery in the next quarter.
“Most likely, the German economy and manufacturing sector won’t make it out of the current state of stagnation and a slight slump in the second quarter [of 2023],” Fuest said.
Economic research institutions expect the German economy to shrink overall in 2023 as the German Institute of Economic Research (DIW) and Kiel Institute for the World Economy (Ifw) recently lowered their growth forecasts for the year.
Both pointed to Russia’s war in Ukraine as a major drag on Germany’s economy as it has, amongst other things, increased the cost of energy and reduced demand.
(Nick Alipour | EURACTIV.de)
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