Germany’s business outlook held at its lowest level since February – highlighting the gloom once again engulfing Europe’s biggest economy after a rebound earlier in 2024 fizzled out.
The Ifo Institute’s expectations gauge dipped to 86.8 in August from a revised 87 in July, beating the 85.8 seen by analysts in a Bloomberg poll.
A barometer of current conditions also declined.
“The German economy is increasingly falling into crisis,” Ifo president Clemens Fuest said on Aug 26 in a statement.
He noted that expectations worsened in both manufacturing and services.
Speaking later to Bloomberg Television, he said that the economy “has been stuck in stagnation for some time and this is getting worse – that’s what the data is telling us”.
Optimism that Germany would rebound in 2024 from two years of almost zero growth has faded as an anticipated jump in consumer spending failed to materialise and the country’s industrial sector continues to struggle.
Gross domestic product unexpectedly declined by 0.1 per cent in the second quarter, while the S&P Global Purchasing Managers’ Index remained below the 50 level that separates expansion from contraction for a second month in August.
The sombre mood was reflected in August’s investor confidence index by the ZEW institute, which slipped to its lowest level since January.
“We need a boost of confidence of consumers and investors – and that requires a policy shift,” Mr Fuest said.
“We need stronger investment incentives. Most about structural reforms, more expansionary fiscal policy and loose monetary policy.”
Some assistance may be on the way on interest rates.
After first lowering borrowing costs in June, the European Central Bank has signalled another move is likely in September.
Germany may need a cut more than the rest of the euro zone, since it is the region’s laggard, according to Mr Fuest.
“But the appropriate stance for the euro zone as a whole is maybe to be a little bit more cautious,” he said.
“We are seeing strong wage increases. We are seeing them in Germany too. The trouble is, German consumers seem not to have the confidence to spend this money.” BLOOMBERG
