German Business Morale Declines for Third Month

By Klaus Lauer and Miranda Murray
BERLIN (Reuters) – German business morale fell for a third consecutive month in August, a survey showed on Monday, pushing back recovery hopes for Europe’s largest economy.

The Ifo institute stated that its business climate index dropped to 86.6 in August from 87.0 in July, though it exceeded analysts’ forecast of 86.0.

“The German economy is increasingly falling into crisis,” said Ifo president Clemens Fuest.

Companies reported increased pessimism and assessed their current situation as worse, according to a survey of around 9,000 managers.

The mood in industry has noticeably deteriorated, while service providers also reported a decline.

“The German economy has settled into stagnation,” said Ifo economist Klaus Wohlrabe, pointing to a lack of orders across sectors and weak investment as consumers hesitated to spend due to inflation uncertainty.

Wohlrabe predicted a potential decline in German GDP for the third quarter, following an unexpected contraction of 0.1% in the second quarter.

The index measuring current conditions fell to 86.5 from 87.1, while expectations dropped slightly to 86.8 from 87.0.

No Grounds for Optimism

“There are not too many reasons for optimism at the moment,” said LBBW bank’s Elmar Voelker.

He cited challenges including a bumpy global economy, geopolitical risks, and the upcoming U.S. presidential election as factors dampening hopes for improvement.

VP Bank chief economist Thomas Gitzel echoed that no recovery is expected “for the time being” and noted that the German economy remains precariously balanced between recession and minimal growth.

The Ifo survey aligns with recent purchasing managers’ index (PMI) data showing business activity contracted in August for the second consecutive month, indicating sluggish economic expansion this quarter.

Germany’s Bundesbank commented last week that while a recession seems unlikely, the overall outlook remains subdued.