Economic Struggles Persist as Business Climate Index Falls
German business morale experienced an unexpected decline in January, marking the second consecutive month of deterioration. Europe’s largest economy is grappling to overcome a recession, resulting in diminished optimism and heightening concerns of another weak year. The Ifo institute reported a decrease in its business climate index from a slightly revised reading of 86.3 in December to 85.2. Clemens Fuest, the president of Ifo, expressed, “The German economy is stuck in recession.”
Economist Forecasts Point Towards a Shallow Recession
Germany’s gross domestic product (GDP) contracted by 0.3% in 2023. Carsten Brzeski, an economist at ING, explained, “The tentative revival of optimism last autumn has turned out to be very short-lived.” Brzeski further forecasted an additional recession this year with a projected decline of -0.3%. Inflation, high energy prices, weak foreign demand, and budgetary concerns have plagued Germany, resulting in deep subsidy cuts and political unease within the coalition government.
Trade Disruptions and Weak Property Sector Heighten Concerns
The closely monitored composite PMI index in Germany declined for the seventh consecutive month in January. Houthi attacks on shipping in the Red Sea have caused trade disruptions, elevating worries for the country’s export industry. Additionally, the struggling property sector in Germany has further contributed to the country’s economic woes. Recent data reveals a 7.4% month-on-month decrease in incoming orders in the construction industry for November.
Modest Growth Expectations Revised Downwards
The Ifo institute revised down its growth estimate, predicting a meager 0.7% rebound for the German economy this year. Joerg Kraemer, an economist at Commerzbank, expressed skepticism, stating, “Most economists are still too optimistic.” Commerzbank expects a decline of 0.3% in GDP for the year. Moreover, the Ifo’s current assessment and expectations components, based on a survey of approximately 9,000 managers, also showed a decline in January.