Business confidence crashes in Germany

Business confidence in Germany has fallen to a ten-month low amid warnings the economy is trapped between ‘stagnation and recession’.

As yet more gloom descended over Europe’s biggest economy, the IFO institute said its index of morale among German companies fell again this month.

Official figures also showed the German economy – dubbed the ‘sick man of Europe’ – failed to grow in the second quarter of the year as high inflation, rising interest rates and subdued exports took their toll.

That followed two quarters of decline at the end of last year and start of this year – plunging Germany into recession.

While the recession has now officially ended – because the economy did not shrink again in the second quarter of this year – it is feared Germany could suffer another downturn in the second half of the year.

‘Prospects of an economic recovery are presently not promising,’ said Claus Niegsch, an analyst at DZ Bank. ‘We are likely to slip into another recession in the last two quarters of this year.’

Carsten Brzeski, an economist at ING bank, said: ‘We continue to see the German economy being stuck in the twilight zone between stagnation and recession.’

He said the latest data ‘pours more cold water on those hoping the country’s economic weakness will be short-lived’. The IFO said its business climate index stood at 85.7, down from 87.4 in July. Analysts polled by Reuters had forecast an August reading of 86.7.

‘The German economy is not out of the woods yet,’ said IFO president Clemens Fuest.