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Ifo President Clemens Fuest: “The German economy is facing a difficult winter”

Nicholas by Nicholas
October 25, 2022
in News
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Dhe mood in the executive floors of German companies remains bad. After the September crash, the Munich Ifo Institute’s business climate index stabilized in October and fell only slightly by 0.1 points to 84.3 points, as announced on Tuesday. The barometer, which is considered the most important economic indicator, fell to its lowest level since May 2020.

While expectations improved somewhat, the approximately 9,000 companies surveyed assessed their current situation as worse than in the previous month. “Nevertheless, companies are looking to the next few months with concern,” said Ifo President Clemens Fuest. “The German economy is facing a difficult winter.”

In industry and construction, pessimism increased further in October. Both sub-indices fell again significantly. Above all, the outlook for the coming months is clouding the mood among companies. In construction, the business situation indicator fell to its lowest level since January 2016, and the order backlog is falling. The order books of the industrial companies are still full, but fewer and fewer new orders are coming in, explained Fuest.

Retail remains the problem child

After a sharp decline in September, the mood among service providers and retailers recovered a little in October. “However, expectations remain extremely bleak, especially in retail,” warned Fuest. In October, retailers were more pessimistic than ever about the future. Above all, the high inflation is currently spoiling the consumer mood. Worried about high energy bills, many households keep their money together.



According to KfW chief economist Fritzi Köhler-Geib, the fact that the Ifo index interrupted its downward trend in October is also due to the “200 billion boom” of the federal government. Deka-Bank economist Andreas Scheuerle also attributes the stabilization of corporate sentiment to the energy price brakes that have been decided. “For the near future, however, increasing adversity is brewing,” he warns.

Alexander Krüger, chief economist at the private bank Hauck Aufhäuser Lampe, sees the economy as difficult months ahead: “Companies remain in depression mode, the energy crisis is stifling economic life,” he commented. With more and more consumers running for cover, the only question is how long and deep the recession will be. Jörg Krämer, chief economist at Commerzbank, also does not want to give the all-clear. The trend is clearly down. “In addition, the business climate is still at levels at which the German economy had shrunk in the past,” explained Krämer.



The signs point to a recession

Other mood barometers paint a bleak picture of the German economy in October. The purchasing managers’ index published by S&P Global (formerly Markit), which is based on a survey of around 800 companies, fell 1.6 percent to 44.1 points. The barometer is thus far below the limit of 44.1 points, which signals growth; lower values ​​indicate a contraction in economic output. The last time the mood was this bad was two and a half years ago when the first corona lockdowns were imposed. The results showed that the “slide in the German economy accelerated early in the fourth quarter of 2022 and signs of an imminent recession in the eurozone’s largest economy have increased,” commented S&P economist Phil Smith.

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The gloomy mood matches the Bundesbank’s expectations. In its latest monthly report, the central bank sees the German economy on the verge of a recession. “The persistently high inflation and the uncertainty about the energy supply and its costs are having a significant impact on the German economy,” says the report published on Friday. Already in the past summer quarter, the gross domestic product could not have grown any more, but stagnated. In the winter half-year that has just begun, it will probably “decrease significantly”, the Bundesbank announced.

Source

Tags: Clemens Fuesteconomic barometerIfo business climate indexJorg Kramermood barometerrecessionS&P

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