Germany recession to drag on as business confidence slumps

Germany recession to drag on as business confidence slumps for second month in a row

Germany faces an uphill battle to shake off recession after a slump in business confidence.

In a fresh setback for Europe’s largest economy, the influential IFO institute said morale in the private sector fell for a second month in a row in June.

‘Sentiment in the German economy has clouded over noticeably,’ said Clemens Fuest, the president of the German economic think-tank. 

The findings fuelled fears that Germany – dubbed ‘the sick man of Europe’ due to its economic woes – faces another quarter of contraction, having declined in the final three months of last year and the first three months of this year. 

That would extend recession in the country, confirming Germany as the laggard among the G7 economies.

Ongoing recession: Morale in Germany’s private sector has fallen for a second month in a row 

Germany’s economy shrank by 0.5 per cent in the final quarter of 2022 and by a further 0.3 per cent in the first quarter of 2023.

‘The probability has increased that GDP will also shrink in the second quarter,’ said Klaus Wohlrabe, head of surveys at the IFO.

Independent economists agreed. Carsten Brzeski, from ING, said: ‘The optimism at the start of the year seems to have given way to more of a sense of reality.’ 

Franziska Palmas, of Capital Economics, added: ‘German GDP probably contracted for the third quarter in a row.’

Commerzbank’s chief economist Joerg Kraemer said: ‘We feel confirmed in our forecast that the German economy will shrink again in the second half.