2024-09-24 22:42:07
The German economy accelerated its decline in September and is headed for recession. The business climate index of the Munich Ifo institute fell to 85.4 points from 86.6 points in the previous month.
“The German economy is under increasing pressure,” said Ifo president Clemens Fuest.
The Ifo index is considered the most important barometer for the economy in Germany and is based on a survey of approximately 9,000 executives. Experts expected the index to fall only to 86 points, but companies assessed their situation and prospects for the coming months, worse than before.
“A recovery is not currently in sight and Germany is the new problem child of the euro countries,” said economist Christoph Schwonke from DZ Bank.
The German economy is burdened by the difficulties of its industry, which is also the pillar of its growth, the slowdown of investments and moderate private consumption, despite the reduction of inflation. In July, German industrial production fell more than expected, also due to problems in the car industry.
At the same time, exports recovered by +1.7%, but imports grew faster in a month (+5.4%) – especially those coming from the Eurozone (+9.3%) “The weak phase of of the German economy continues,” commented Jens Oliver Niklas of the LBBW bank.
“cold shower”
“The German economy is under increasing pressure,” writes the German newspaper Wirtschafts Woche, noting that it is the fourth consecutive drop in the Ifo index and the lowest level since January.
“The German economy is on the brink of a downward spiral,” Ifo economic expert Klaus Vollarbe told Reuters.
The significant fall in the Ifo index is a “cold shower” as the important barometer is now clearly pointing down, Commerzbank chief economist Jörg Kramer said.
German GDP is likely to stagnate – at best – in the second half of the year and hardly grow in 2025 either. “With an increase of just 0.5% there is no real recovery,” Cramer adds.
The union-linked IMK institute has also cut its forecasts and expects the economy to stagnate in 2024. energy sources, networks, transport infrastructure and in education,” said Sébastien Dullien, scientific director of the IMK.
“It’s not gaining momentum”
Economists had long assumed the economy would pick up again in the second half of the year, driven by lower interest rates and rising real wages. But these estimates were not verified.
The Bundesbank warned in mid-September, in a monthly report, that “the economy will stagnate or contract again in the third quarter”. However, “a recession in the sense of a significant, widespread and sustained decline in economic output should not be expected for now,” the German central bank added.
“The German economy is not gaining momentum,” notes Handelsblatt, estimating that instead of growing by 0.1%, it will contract by 0.1% this year.
The five main German institutes – Ifo, DIW, IWH, IfW and RWI – will officially present their forecast on Thursday. But – according to the German newspaper – they are expected to announce a downward revision of their estimates for 2024 and predict a contraction of -0.1% of GDP. This will then be the second consecutive year for the German economy, after already contracting its GDP in 2023.
Bad news for the Solz government
“This is bad news for the federal government, which had counted on a recovery to change the mood among disillusioned voters of the three coalition parties under Chancellor Olaf Soltz ahead of the 2025 federal election,” notes Handelsblatt.
Financial institutions are also expected to revise their forecasts downward for the coming years. For 2025, they see a decrease in GDP from +1.4% to +0.8%, while in 2026 it is expected to increase by only +1.3%, according to the German newspaper.
If these forecasts are confirmed at the end of the year, it would be a further blow to Germany, which was last year the worst performing economy in the eurozone. The coming months will be very difficult for Europe’s largest economy.