German business confidence falls as economy nears standstill

CONFIDENCE in Germany’s business outlook worsened in August as soaring inflation and fears about a possible recession in Europe’s largest economy intensified. 

The Ifo Institute’s gauge of business expectations for the next 6 months inched down to 80.3 from 80.4 in July, though economists had predicted a steeper decline. Current conditions were also assessed more negatively. Still, separate data showed that the economy proved more resilient than initially thought in the second quarter.

As the country rushes to wean itself off Russian energy, business surveys are highlighting Germany as a weak spot within the 19-nation eurozone. Output already began to shrink in July and contracted again in August, S&P Global said in a separate release earlier this week. 

The outlook for the coming months is “clearly pessimistic”, said Ifo president Clemens Fuest. “Uncertainty among companies remains high. Economic output is likely to shrink in the third quarter.”

In the 3 months till June, a growth rate of 0.1 per cent exceeded a preliminary estimate and helped the country narrowly escape stagnation, though it will not do much to dispel fears over the outlook.

The expansion was driven by government expenditures, with household spending also contributing, according to a release by the statistics office on Thursday. But the headwinds to growth are getting stronger, with Russia curtailing natural gas shipments, and soaring prices menacing households and companies. 

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The Bundesbank said this week that third-quarter output will more or less stagnate, while the risk of a contraction in the fourth quarter of 2022 and first quarter of 2023 has increased “considerably”. Inflation, meanwhile, may reach about 10 per cent towards year-end. BLOOMBERG