Brandenburg Gate in Berlin, Germany

Germany Business Confidence August 2019

Germany: Business confidence slumps to near seven-year low in August, raising concerns of recession

Business sentiment among German firms sank to a near seven-year low in August, with the Ifo business climate index falling to 94.3 points from a revised 95.8 in July (previously reported: 95.7). August’s result marked the fifth consecutive month of tumbling confidence and reflected deepening gloom over the German economy. “There are ever more indications of a recession in Germany. […] Not a single ray of light was to be seen in any of Germany’s key industries”, noted Clemens Fuest, president of the Ifo Institute.

August’s result reflected a broad-based deterioration. The all-important manufacturing sector was increasingly pessimistic over the current situation and the expected climate in the months ahead, with confidence hovering at the lowest levels since 2009. Moreover, overall sentiment within the trade sector slipped into negative territory, while confidence in the services sector fell sharply in August—chiefly due to a less favorable assessment of the current climate—although remained positive nonetheless. Similarly, despite falling mildly due to a less positive assessment of the current situation, overall sentiment in the construction sector remained firmly in positive territory.

All in all, Eurozone’s largest economy is suffering from the effects of rising external headwinds, chiefly due to its significant exposure to escalating global trade conflicts and Brexit-related uncertainty. The downturn in the German manufacturing sector appears to be spreading to the wider economy, with domestic demand, which has been solid to date, seemingly losing momentum, and thus raising calls for government stimulus. Looking ahead, the chief economist of ING Germany, Carsten Brzeski, noted that:

“The German manufacturing sector still seems to be in free fall. At least in the short run, there is very little hope for a rebound. […] the manufacturing downturn and never-ending external woes have started to bruise the domestic economy. […] The more and harder the domestic economy will be hit by the current slowdown, the higher the likelihood of a significant fiscal package”.

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