The mood in the German economy has deteriorated significantly in view of the Ukraine war and the aftermath of the pandemic. The Ifo business climate fell by 4.3 points to 84.3 points in September compared to the previous month, as the Munich economic research institute announced on Monday. This is the lowest level since May 2020. Experts had expected a slowdown, but only to 87 points. In the previous months, the mood had mostly deteriorated.
“The German economy is sliding into a recession,” commented Ifo President Clemens Fuest. The companies surveyed rated both their current situation and the expected development as worse. The business climate also clouded over in all sectors considered, i.e. in industry, among service providers, in trade and in construction. In the retail sector, business expectations have fallen to a historic low, the institute said.
The German economy is suffering from a multitude of critical developments. First and foremost is Russia’s war in Ukraine, which has increased insecurity. Added to this are the energy crisis, problems in world trade and rising key interest rates, which are making loans more expensive. In addition, the pandemic has not been overcome: China’s anti-corona policy in particular is repeatedly causing problems in world trade, for example because operations in ports or factories are disrupted due to containment measures.
Bank economists expressed pessimism. “In the short term, due to persistently high gas and consumer prices, the uncertainty of supply, geopolitical risks and rising interest rates, there is no indication that the mood in the German economy will soon be on the road to recovery,” said Ralfcircul from Landesbank Hessen-Thüringen. Hardly anything will change in the European Central Bank’s plan to further raise interest rates. An economic downturn is accepted.
The Ifo business climate is Germany’s most important leading economic indicator. It is based on a monthly survey of around 9000 companies.
