In June, business sentiment in Germany declined, for the second month in a row, according to a survey published on Monday, indicating the nation likely faces a longer recession than analysts have been predicting.
According to the Munich Ifo Institute for Economic Research, the EU’s largest economy saw its business climate index fall to 88.5 this month, down from 91.5 in May. The decline was deeper than analysts had been expecting.
Ifo president Clemens Fuest said, “Sentiment in the German economy has clouded over noticeably.”
Klaus Wohlrabe, head of Ifo surveys, said to Reuters in an interview that the nation faces the prospect of a longer recession, as both exporter’s expectations and domestic demand have weakened.
Although the government of Germany predicted that the nation’s gross domestic product would rise by 0.4%, up from its January expectations of 0.2%, experts now believe that forecast will have to be downgraded in light of recent data.
Wohlrabe said, “The probability has increased that gross domestic product will also shrink in the second quarter.”
The survey by the Ifo revealed that a slower rise in business activity in the service sector combined with the largest monthly deterioration in manufacturing.
Mateusz Urban, senior economist at Oxford Economics said, “It is clear that industry remains under pressure from waning demand, in line with Friday’s PMIs which saw industry in the Eurozone’s biggest economy deep in contractionary territory amid rapidly shrinking backlogs and destocking.”
On Monday, the Bundesbank stated that it expects the recession in Germany to end soon, with GDP rising slightly in the second quarter of 2023. Similarly, the German bank indicated it believed the decline in private consumption “should bottom out.”
Other analysts however do not paint so rosy a picture. Franziska Palmas, senior Europe economist at Capital Economics, said, “The slump in the German Ifo, together with the drop in the PMIs, suggests that German GDP probably contracted for the third quarter in a row in the second quarter.”
The research firm is predicting Germany will remain in a recession through the end of 2023. Similarly Commerzbank’s chief economist Joerg Kraemer said, “We feel confirmed in our forecast that the German economy will shrink again in the second half of the year.”
