September 27, 2022
According to a significant survey released on Monday, the business climate in Germany dramatically declined in September. This is the latest indication that Europe’s largest economy is on the verge of recession as it deals with an energy crisis.
Based on a poll of approximately 9,000 enterprises, the Ifo institute’s monthly confidence barometer dropped 4.3 points to 84.3 from the previous month.
The economy shrank for the fourth consecutive month, bringing the indicator to its lowest point since May 2020. The decline was felt throughout the entire economy, from the manufacturing to the service sectors.
As tensions over the Ukraine crisis rise, Russia cut off gas supplies through a crucial pipeline, leaving Germany with skyrocketing inflation, particularly in the energy sector.
All of Europe is impacted, but Germany has been particularly severely struck because it was so dependent on Russian imports before the war.
According to ING analyst Carsten Brzeski, a recession in Germany is now “inevitable” due to “rising inflation, surging energy prices, persisting supply chain frictions, and deteriorating global demand.”
The survey showed a particularly severe decline in confidence, with a 14.2 point loss. Manufacturing is a key sector for the German economy.
The evaluation of the current situation by businesses also dropped 3.0 points to 94.5 percent.
The OECD also predicted on Monday that Europe’s economic powerhouse would contract next year, making the barometer the most recent indicator that Germany is on the verge of a contraction.
German GDP increased by just 0.1 percent from April to June.
Inflation rose at a 7.9-percent rate in Germany in August, well above the two-percent target of the European Central Bank.
Source: Barron’s
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