The mood in the German economy remains gloomy: the IFO business climate index falls again in October. The companies rate their outlook a little less gloomy than recently. However, the trend is “clearly downwards”, warns the chief economist at Commerzbank.
In view of the energy crisis and fears of recession, the mood in the executive floors of German companies deteriorated even further in October. The IFO business climate index fell to 84.3 points from the revised 84.4 points in the previous month, as the Munich IFO Institute announced in its survey of around 9,000 executives. Economists had expected an even sharper decline.
Although those surveyed assessed their business situation as worse, they assessed the prospects as less bleak than recently. “Nevertheless, companies are looking to the next few months with concern. The German economy is facing a difficult winter,” said IFO President Clemens Fuest.
The chief economist at Commerzbank, Jörg Krämer, also warns: “The trend is clearly pointing downwards.” In the previous month, the business climate had literally collapsed and is now at levels at which the German economy has shrunk in the past. This also applies to the quite reliable purchasing managers’ index for the service sector in the euro area. “I continue to expect that the German economy will contract in the winter half-year,” said Kramer. The fact that the IFO index fell only slightly in October is “not the all-clear”.
In manufacturing, the index fell again. This was due to more pessimistic expectations from companies, which assessed their current situation as slightly better. The order books are still full, but fewer and fewer new orders are being added. Capacity utilization fell from 85.3 to 84.6 percent. However, it is still above the long-term average of 83.6 percent.
In the services sector, the business climate recovered slightly after the previous month’s crash. Service providers were less pessimistic about the coming months. However, they assessed the current business somewhat worse. In trading, the index rose. This was due to slightly better assessments of the current situation. However, expectations remain extremely bleak, particularly in retail.
In construction, the business climate deteriorated again. The business situation indicator fell to its lowest level since January 2016. The outlook also continued to cloud over. The order backlog was declining.
The generally still gloomy mood in the economy fits the assessment of the Bundesbank, which sees Germany on the brink of recession. She understands this to mean a clear, broad-based and long-lasting decline in economic output.
High inflation and uncertainty about the energy supply are weighing on the German economy. According to the Bundesbank, gross domestic product could already have stopped growing in the past summer quarter. According to the Bundesbank’s economists, it will probably fall significantly in the winter half-year that has just begun.
For the data on gross domestic product (GDP) in the third quarter due on Friday, experts expect a decline in economic output of 0.2 percent. In the spring, GDP growth was just 0.1 percent.
