German Ifo Business Sentiment Deteriorates In June

Germany’s business sentiment worsened more than expected in June as the war in Ukraine, high inflation and supply chain disruptions triggered fears of recession, survey results from the ifo Institute showed on Friday.

After rising for two months, the business confidence index dropped to 92.3 in June from 93.0 in the previous month. The index was forecast to fall marginally to 92.9.

Companies were somewhat less satisfied with their current business situation and their expectations turned markedly more pessimistic.

The current situation index fell to 99.3 from 99.6 but remained above the expected reading of 99.1.

At the same time, the expectations index eased unexpectedly to 85.8 from 86.9 in the previous month. Economists had forecast the index to rise to 87.4.

Rising energy prices and the threat of gas shortages are of great concern to German business, ifo Institute President Clemens Fuest said.

With inflation set to remain high and the country’s gas supply looking increasingly precarious, the chances of the country falling into recession this year have increased considerably, Capital Economics economist Michael Tran said.

ING economist Carsten Brzeski said the German economy will definitely not plunge as it did during the 2020 lockdowns.

However, consumer confidence is already in clear recession territory and today’s Ifo reading, as well as yesterday’s PMI reading, both suggest that the manufacturing sector is quickly following suit, Brzeski noted.

The flash Purchasing Managers’ survey this week showed that Germany’s private sector logged its slowest expansion, with growth moderating sharply to the weakest since the marginal contraction seen last December.

At 51.3, the composite output index fell for the fourth month in a row in June, from 53.7 in May. The factory PMI came in at 52.0 versus 54.8 in the previous month.

Among sectors, business confidence weakened considerably in the manufacturing segment, the ifo survey showed. Manufacturers assessed the current situation as slightly worse, while they were significantly more pessimistic about the second half of this year.

On the other hand, confidence improved clearly in the service sector due to markedly less skeptical expectations. Moreover, they assessed the current situation as a little better.

In construction, business confidence improved, while the index for trade worsened in June.

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