Business confidence slips further as Germany faces sluggish recovery

BERLIN: German business morale deteriorated in July for the third month in a row, a survey showed on Tuesday, as analysts warned that Germany’s economic engine was struggling to recover after slipping into recession earlier this year.

The Ifo institute said its business climate index stood at 87.3 following a revised reading of 88.6 in June. The drop was slightly bigger than forecast, with analysts polled by Reuters having expected a July reading of 88.0.

“The German economy has not really got back on its feet since the coronavirus crisis,” said VP Bank chief economist Thomas Gitzel. “The problem is that cyclical uphills are not accompanied by strong GDP growth rates, but rather by fragile growth.” Europe’s largest economy slipped into a technical recession in early 2023, defined by two consecutive quarters of contraction. Preliminary GDP data for the second quarter are expected on Friday.

Gitzel predicted only slight growth in second-quarter GDP of 0.1% followed by a slide in the third as the global economy weakens and energy concerns persist.

Carsten Brzeski, global head of macro at ING, said the German economy was feeling the effects of a weaker-than-hoped-for Chinese reopening, a looming US recession and ongoing monetary policy tightening, ahead of another expected rate hike from the European Central Bank on Thursday.

“The growing feeling that Germany is in for a longer period of subdued growth also seems to have reached German business,” he said.

A slew of other indicators have painted a gloomy outlook for Germany, where sluggish output has acted as a drag on the euro zone.

In July, S&P Global’s composite PMI index, which comprises services and manufacturing, dipped below the 50-mark, indicating a decline in activity for the first time since January and raising the likelihood of a longer recession.

A surprise jump in industrial orders in May calmed nerves only briefly, as analysts pointed to serious pressure on the sector as global demand slows.