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German business sentiment took another hit in September, falling for the fourth consecutive month, according to a recent survey released on Tuesday. This dip adds to growing concerns that Europe’s largest economy may have slipped into recession.
The Ifo Institute’s business climate index, a widely watched gauge of business morale, fell to 85.4 in September from 86.6 in August, marking a steeper decline than the 86.0 forecasted by analysts polled by Reuters. This latest data compounds the negative outlook, as earlier reports indicated that German business activity contracted at its sharpest pace in seven months, setting the stage for a second consecutive quarter of economic contraction.
Worsening Economic Climate
The survey, which gathered responses from around 9,000 company managers, revealed that the majority viewed the current economic situation as having deteriorated. The current conditions index dropped to 84.4 in September, down from 86.4 in August, against expectations of an 86.0 reading. This suggests that the economic downturn in Germany is gaining momentum, with mounting challenges for businesses across various sectors.
The outlook for the coming months has also worsened, with the expectations index slipping to 86.3 in September from 86.8 in August. If this downward trend continues, it could spell further trouble for Germany’s economic performance in the latter part of the year.
Recession Fears Loom
The German economy contracted by 0.1% in the second quarter, and the data now suggests a further potential contraction in the third quarter. A recession is typically defined as two consecutive quarters of negative growth, and Germany seems to be edging closer to meeting this criterion.
The business climate index showed declines across all sectors, except for construction. Particularly concerning was the manufacturing sector, where the index fell to its lowest level since June 2020, signaling deeper troubles ahead.
Manufacturing Downturn Spills Over
The recent downturn in German manufacturing, a cornerstone of the country’s economy, appears to be spilling over into the broader economy. A purchasing managers’ survey released earlier this week highlighted that German business activity contracted more sharply than anticipated in September, suggesting that the manufacturing sector’s struggles are beginning to impact other industries.
Expert Opinions
Commerzbank’s chief economist, Joerg Kraemer, noted that the trend in sentiment indicators is pointing downwards, signaling a possible “downward spiral” for the German economy. This negative sentiment, combined with falling output and a lackluster outlook, underscores the challenges Germany faces in avoiding a prolonged recession.
As Germany’s economic woes deepen, policymakers and businesses will be closely watching future indicators to determine the extent of the downturn and potential measures to stimulate growth and restore confidence in the eurozone’s biggest economy.
