German Ifo Business Confidence Weakens For Second Straight Month

German business confidence weakened for the second straight month in August mainly due to significantly less optimism in companies’ expectations, survey results from ifo Institute showed on Wednesday.

The business climate index fell to 99.4 in August from 100.7 in July. The score was expected to ease moderately to 100.4.

Expectations among companies deteriorated to a six-month low in August. By contrast, companies assessed their current situation as somewhat better than in the previous month.

The current situation indicator advanced to 101.4 from 100.4 in the previous month. The expected level was 100.8.

On the other hand, the expectations index declined to 97.5 in August from 101.0 a month ago and also remained below economists’ forecast of 100.0.

Supply bottlenecks for intermediate products in manufacturing and worries about rising infection numbers are putting a strain on the economy, Clemens Fuest, ifo President said.

The second successive decline in the confidence index provides further evidence that Germany’s recovery is losing some momentum, partly due to supply chain difficulties in the manufacturing sector and the Delta variant, Andrew Kenningham, an economist at Capital Economics, said.

That said, GDP should still increase sharply in the third quarter, the economist said.

In manufacturing, the business climate weakened notably in August. Assessments of the current situation declined but stayed in positive territory. Meanwhile, the outlook for the coming months, took a clear dip, as the expectations indicator fell to its lowest level since November 2020.

The business climate indicator in the service sector also dropped in August. The optimism with regard to future business development has faded. However, companies still assessed their current situation as much better than in July.

The sentiment index fell in trade also. Companies were less satisfied with their current business situation, and their expectations also turned more pessimistic.

However, in construction, the business climate index rose from July. Companies were somewhat more satisfied with their current business, and their expectations were also much brighter.

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