The IFO business climate index falls more than expected in July. The mood among managers is as bad as it was two years ago. Even if gas is currently flowing, according to analysts, the sword of Damocles “complete gas stop” is hanging over the economic outlook.
The mood in the top floors of the German economy is worse than it has been for around two years and is fueling fears of a recession. The IFO business climate index fell in July to 88.6 points from the revised 92.2 points in the previous month, as the Munich IFO Institute announced in its survey of around 9,000 managers. This is the lowest value since June 2020. The economists surveyed only had a drop to 90.2 points on the slip.
“High energy prices and the threat of gas shortages are weighing on the economy. Germany is on the verge of recession,” said IFO President Clemens Fuest. Executives were more skeptical about their business situation and prospects than they were recently. That is hardly surprising, says VP Bank chief economist Thomas Gitzel. Even if gas is currently flowing from Russia, which is ruled by President Vladimir Putin, in limited quantities, the sword of Damocles “complete gas stop” hangs over the economic outlook.
Uncomfortable times are ahead for the German economy, said IFO expert Klaus Wohlrabe: “The recession is knocking at the door, that can no longer be ruled out. But if Putin continues to deliver, there will be no recession.” The IFO index also fell sharply in manufacturing. Pessimism about the coming months has even reached its highest level since April 2020 in this sector. According to the Munich researchers, this applies to almost all branches of industry.
“How bad it gets is mainly in Putin’s hands”
In addition, the business climate in the service sector has deteriorated significantly. In particular, expectations have collapsed. “After the last great optimism, the mood also turned in the tourism sector and the hospitality industry,” said the IFO. According to the Bundesbank, the economy was hardly moving in the spring due to the surge in inflation and the uncertainty about future energy supplies. These factors also weighed on the German economy in the summer. According to a survey by S
All in all, the economy in Germany is probably already in a downturn, according to Commerzbank chief economist Jörg Krämer: “How bad things turn out in the end is unfortunately mainly in Putin’s hands. If there were a complete stop to gas supplies, there would be a deep recession inevitable.”