Ifo index falls again – “German economy slides into recession”

The mood in the executive floors of German companies clouded over more than expected in September. The Ifo business climate index fell to 84.3 points from 88.6 points in the previous month and thus to its lowest level since May 2020, as the Munich Ifo Institute announced on Monday in its survey of around 9000 executives. Economists polled by Reuters had only expected a decline to 87.0 points.

"The German economy is slipping into recession," said Ifo President Clemens Fuest. "The pessimism with regard to the coming months has increased significantly." The respondents were even more skeptical about the business situation and prospects than before.

"We see a big minus on all fronts," said Ifo economic expert Klaus Wohlrabe in a Reuters interview. "The energy-intensive sectors in particular are extremely pessimistic about the winter." The industry is looking to the next six months with great concern, explained Ifo boss Fuest. "The expectations were last so pessimistic in April 2020." The mood has deteriorated in almost all sectors.

The entire Ifo index signals more than ever a recession in the winter half-year, emphasized Commerzbank chief economist Jörg Krämer. The energy price shock is causing consumers' purchasing power to collapse and making the production of many companies unprofitable. "Germany has become poorer due to the massive increase in the price of energy imports," said Krämer. "We are facing an economically difficult winter."

In the service sector, the Ifo barometer collapsed. The hospitality industry in particular fears difficult times. In trade, the business climate has deteriorated again. “In retail, expectations even fell to an all-time low.” The index also fell noticeably in the main construction trades.

Despite the consequences of the Ukraine war, the German economy still managed to achieve mini-growth of 0.1 percent in the spring. At the moment, however, the prospects are bleak due to the worsening energy crisis and high inflation. The Bundesbank expects the economy to shrink somewhat in the summer quarter that is coming to an end, and then even lose momentum noticeably at the end of 2022 and the beginning of 2023.