Economy in gloomy mood
“Hard times” cause the Ifo index to fall massively
03/25/2022 10:27 am
The German economy is expecting “hard times” – and that is having a massive impact on the mood: the Ifo business climate index, the most important leading indicator for the economy in Germany, is falling massively. This ends the recovery phase abruptly.
The mood in the executive floors of German business has deteriorated massively after the Russian invasion of Ukraine. The barometer for the business climate fell to 90.8 points in March after 98.5 points in February, as the Munich-based Ifo Institute announced in its monthly survey of around 9,000 managers. Economists polled by Reuters had only expected a drop to 94.2. The most important leading indicator for the economy in Germany had previously risen for two months in a row.
“Companies in Germany are expecting hard times,” said Ifo President Clemens Fuest. Executives assessed their business situation and, above all, the prospects for the next six months as worse than recently. In February, Fuest had already hinted at the slump that was to be expected after the outbreak of war: “The German economy is counting on an end to the corona crisis. However, the escalation of the crisis in Ukraine remains a risk factor.”
The interim upward trend has now been abruptly stopped again. In February, Berenberg chief economist Holger Schmieding expected that “a Russian attack on Ukraine […] delay recovery by one to two months”.
The Ifo researchers recently lowered their forecast for economic growth this year. They only expect growth of between 2.2 and 3.1 percent, after previously expecting an increase in gross domestic product (GDP) of 3.7 percent, as they recently announced.
“The Russian attack is dampening the economy through significantly increased raw material prices, the sanctions, increasing supply bottlenecks for raw materials and intermediate products and increased economic uncertainty,” the statement said. Inflation is likely to rise faster than expected. The Ifo expects 5.1 to 6.1 percent for 2022 instead of the 3.3 percent expected in December.