“In difficult waters”
IFO business climate drops significantly
06/26/2023, 12:11 p.m
The continued significant downturn in the German economy is causing headaches for executives. They see an economic recovery moving further into the distance. One sector in particular is clouding the prospects in June as well.
The mood in the German economy continued to deteriorate significantly during the recession. The IFO business climate fell surprisingly sharply in June to 88.5 points from 91.5 points in the previous month and thus for the second time in a row, as the Munich IFO Institute announced in its survey of around 9,000 executives. Experts polled by Reuters had only expected a drop to 90.7 points. “The weakness in industry in particular is putting the German economy in difficult waters,” said IFO President Clemens Fuest. Managers were more skeptical about their current business and their prospects far more unfavorable than before.
From November to April, the most important barometer for the German economy rose six times in a row. A decline in the IFO index has become apparent, said analyst Jens-Oliver Niklasch from LBBW. “But the fact that it went down so significantly is shocking – we are in the middle of a recession.” In the current second quarter, too, economic output is likely to go down noticeably overall. “For the time being, an economic recovery is a long way off.” Ralfcircul from Helaba explained that the economic prospects remained gloomy at the end of the second quarter. “Business sentiment has continued to deteriorate amid higher interest rates and tighter lending conditions, as well as a mixed international environment.”
Demand for “Made in Germany” subdued
In the manufacturing sector, the business climate has clouded over considerably, emphasized IFO boss Fuest. Expectations have fallen to their lowest level since November 2022. “Hardly any industry could escape this development.” The current situation is also rated less well. “Meanwhile, many companies judge their order backlog as too low.” There are hardly any rays of hope, said IFO economic expert Klaus Wohlrabe. “The worldwide interest rate increases are dampening the demand for goods ‘Made in Germany’.” According to the IFO, the business climate index also fell in the service sector, trade and construction.
The German economy shrank at the end of 2022 and beginning of 2023 compared to the previous quarter. According to a rule of thumb of experts, it is therefore in a technical recession. The head of the economics, Monika Schnitzer, is largely assuming stagnation for the current year. “Growth will be plus/minus zero,” said the government adviser and chair of the Advisory Council recently. There will probably be a recovery from the second half of the year. “It depends on China.” However, the interest rate increase course of the European Central Bank is increasingly affecting the economy and is slowing down the economy.