Germany: fourth consecutive drop in business morale in August

Entrepreneurial morale in Germany continued to decline in August, as fear of economic decline dominates the debate in Europe’s biggest economy, according to the IFO barometer released on Friday.

The indicator, carried out via a monthly survey of 9,000 German companies, fell 1.7 points to 85.7 points, down for the fourth consecutive month, the Munich Institute of Economic Affairs said in a press release.

This is worse than expected by analysts of the financial tool Factset, who expected an IFO at 86.8 points.

The component of the barometer measuring confidence for the next six months lost 1.0 point, to 82.6 points.

The assessment of the current business situation has meanwhile fallen to its lowest level since August 2020.

“The crossing of the desert of the German economy continues”, summarizes Clemens Fuest, president of the IFO institute, quoted in the press release.

The leading European economy has certainly managed to emerge from the winter recession with stagnation in its Gross Domestic Product (GDP) in the second quarter of 2023, as indicated on Friday by the national statistics institute Destatis.

But the summer quarter is already shaping up to be tricky according to another key indicator, the Purchasing Managers’ Index (PMI), which remains on two significant declines in July and August.

The country is weighed down by inflation and high rates which are undermining domestic consumption, while the manufacturing sector is seeing external demand dry up.

Exports of “made in Germany” products are slowing down, especially to major Chinese and North American customers.

The former locomotive of the EU should thus be the only major industrial country to experience a recession in 2023, according to the IMF.

“What the German economy needs today are not economic stimulus programs, but signals helping to improve local conditions,” says Ulrich Kater, economist at DekaBank.

But on remedies, the ruling coalition of Chancellor Olaf Scholz’s Social Democrats, Greens and Liberals airs its divisions in public, not helping business morale.

25/08/2023 10:40:27 – Frankfurt (Germany) (AFP) – © 2023 AFP