Dhe fear has been around for some time, but now there are increasing signs that German economic output will collapse in late summer and a recession could begin. That’s what S&P Global Flash (formerly Markit) August survey data released Tuesday suggests. The index fell 0.5 points to 47.6 points. That was the second decline in a row. Values of 50 points and more, which signal growth, are a long way off. The last time the value was this low was in June 2020, i.e. at the beginning of the Corona crisis, which caused a severe economic slump. For the business cycle indicator, 800 representatively selected companies from industry and the service sector are asked about their business situation and prospects.
S&P economist Phil Smith said the new data painted “a bleak picture of the German economy midway through the third quarter.” The continued weakness of the industry, which continues to suffer from supply chain problems, is now being “reinforced by the slowdown in the service sector”. Inflation and higher interest rates would have “massively damaged” demand. Retailers have been complaining of declining business lately, suggesting that Germans are increasingly holding onto their money, also amid fears of the rising energy bills that await them in the fall. Many Germans saved during the pandemic, but this money is increasingly being eaten up by the high prices, the Ifo Institute also announced on Tuesday.
The Bundesbank is also pessimistic
The weak data add up to an overall not optimistic picture. The Bundesbank warned last month that after the stagnation in the middle of the year, a recession – i.e. two quarters of shrinking economic power – had become even more likely around the turn of the year. For example, the Ifo Institute still expects gross domestic product to grow by 2.5 percent compared to the previous year and with a stronger upswing in 2023. These forecasts are subject to change, however. According to economists, if Russia permanently stops its gas supplies in autumn, there is a risk of a deeper recession, comparable to that during the Corona crisis.
To make matters worse, the economic situation in Germany’s immediate vicinity is also deteriorating. The S&P index for the eurozone also slipped below the growth threshold of 50 points for August, hitting its lowest level in a year and a half. There is no reason to expect impetus from countries with which Germany has close economic ties. Because China, Germany’s most important trading partner, is also struggling with major economic problems due to its restrictive lockdown policy.
