German business confidence fell further, adding to concerns that Europe’s largest economy is facing a recession with no quick recovery in sight, Bloomberg reported.
The Ifo Institute’s expectations index fell to 86.3 points in September from 86.8 the previous month, its lowest level since February and slightly below what analysts in a Bloomberg poll had expected.
“The main point of weakness is really in the manufacturing sector, which is very important,” Ifo Institute President Clemens Fuest said in an interview with Bloomberg.
He added that this weakness can be observed in all sectors, including the chemical, electrical equipment and automotive industries, noting that “companies tell us that they lack orders. In addition, we are now facing weaknesses in the services sector.”
Growing concerns
There is increasing talk of a German economic downturn after a series of bad news that highlighted the weakness of the automotive sector, a pivotal sector for the German economy.
The weak performance casts a shadow over the entire euro zone, where the recovery that the 20-nation bloc enjoyed earlier this year has fizzled out, according to Bloomberg.
Some support is coming from the more accommodative monetary policies of the European Central Bank.
While the Bundesbank insisted that a severe economic downturn was unlikely, it warned that Germany could already be in recession, with another contraction possible in the third quarter after a 0.1% decline in the second quarter.
Continuous decline in indicators
The latest data released by Standard & Poor’s on Monday showed that Germany’s purchasing managers’ index fell to 47.2 points, its lowest level in seven months and well below the 50 mark that separates growth from contraction.
In the eurozone, the composite index unexpectedly fell below this level, reflecting a slowdown in economic activity in general.
“Recent news may point to a weaker near-term outlook,” said ECB Governing Council member Madis Müller.
Third rate cut?
Markets are now signaling a third rate cut this year on October 17, to 3.25%.
Economists have already begun to lower their economic forecasts for 2024, with some now predicting a recession or another slight decline, Bloomberg reported.
The German economy, which has suffered particularly from falling demand in China, is the only G7 economy to contract in 2023.
“We cannot rule out that we will end up with negative growth this year. Much will depend on consumption, which could have an adverse effect,” said Clemens Fuest, head of the Ifo institute.
“So far, we see disposable income rising, but that is not translating into increased consumption and, consequently, a higher savings rate, which suggests that people may be feeling anxious about the future,” he continued.
