The business sentiment in Germany has deteriorated further in June, indicating a longer recession than previously anticipated. This information comes from a survey published by Munich’s Ifo institute for economic research. The business climate index for the largest economy in the European Union dropped from 91.5 in May to 88.5 this month, a larger decline than expected.
Clemens Fuest, the president of Ifo, expressed concern about the noticeable darkening of sentiment in the German economy. Klaus Wohlrabe, the head of Ifo surveys, also highlighted the weakening of domestic demand and exporters’ expectations, which suggests a longer recession for the country. As a result, economists believe that the German government’s prediction of a 0.4% growth in gross domestic product (GDP) for the country, up from the initial forecast of 0.2% in January, will need to be revised downward.
Wohlrabe went on to say that there is an increased probability that the GDP will shrink in the second quarter. The Ifo survey revealed the largest monthly deterioration in manufacturing and a slower rise in business activity in the service sector. Industry in Germany remains under pressure due to declining demand, leading to contractionary territory and rapidly shrinking backlogs and destocking.
Mateusz Urban, a senior economist at Oxford Economics, remarked that the slump in industry in the Eurozone’s largest economy, as indicated by the PMIs, along with the decline in the German Ifo, suggests that the German GDP likely contracted for the third consecutive quarter in the second quarter.
While the Bundesbank stated that the recession in Germany will soon come to an end and expects a slight rise in GDP in the second quarter of 2023, analysts are less optimistic. Franziska Palmas, senior Europe economist at Capital Economics, believes that the German economy will remain in recession throughout 2023. Commerzbank’s chief economist Joerg Kraemer shares this sentiment and warns that the German economy will shrink again in the second half of the year.
It is clear that the situation in Germany is cause for concern, with declining business sentiment and predictions of a prolonged recession. The German government’s forecast for GDP growth needs to be revised, and economists believe that the downward trend will continue. The manufacturing sector is particularly affected, and the service sector is also experiencing a slowdown. The overall outlook for the German economy remains uncertain, and it will be important to closely monitor future developments.