Germany’s once-dominant economy is on the rocks, worrying new data has suggested – with one UK-based expert suggesting the country traditionally seen as the engine of the EU is on the brink of a damaging recession.
Julian Jessop pointed to the latest monthly Business Climate Index published by the Ifo Institute, an influential Munich-based think tank, indicating a sharp drop in confidence among business leaders.
Referring to a separate analysis known as the Purchasing Managers’ Index, which likewise measures business confidence, the Economics Fellow at the London-based Institute for Economic Affairs commented: “More bad news from Germany…
“September Ifo survey adds to the #recession signals from yesterday’s grim PMI.”
The Ifo’s report, published yesterday, and based on roughly 9,000 responses from businesses in manufacturing, the service sector, trade and construction, suggested that sentiment had “once again deteriorated at companies in Germany”.
The index fell in September to 85.4 points, from 86.6 points in August, the fourth decline in a row.
The report added: “The companies were particularly less satisfied with the current business situation. The outlook for the coming months continues to decline. The German economy is coming under ever-increasing pressure.
In manufacturing, the index fell to its lowest level since June 2020. The companies assessed their current situation to be significantly poorer. Expectations are also significantly more pessimistic.
“The lack of orders has intensified. The core sectors of Germany industry are struggling.”
In the service sector, the business climate has declined, with companies “significantly less satisfied with the current situation”, the report continued.
On the other hand, expectations were “somewhat less skeptical”, with sentiment in hospitality and tourism having improved.
In the trade sector, the index had also fallen. The Ifo’s report explained: “In particular, the outlook for the coming months was again marked by increased skepticism. Traders also assessed their current situation to be slightly poorer.
“In construction, the index climbed due to a decline in pessimistic expectations. On the other hand, the companies were somewhat less satisfied by the current business situation.”
The HCOB Flash Germany Manufacturing PMI, published on Monday, fell for a fourth straight month to 40.3 in September 2024, its lowest in a year, below 42.4 in August and forecasts of 42.3.
The downturn in the manufacturing sector has slumped again, with new orders declining faster, and employment contracted at a rate not seen since the pandemic in 2020, as several major automotive suppliers have announced significant job reductions.
Dr Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented: “Manufacturers are downright depressed about their future activity, with expectations for the coming year plummeting.
“This rapid downturn in sentiment is most likely linked to the wave of negative headlines surrounding Volkswagen, which has cast a shadow over the broader industry.”
