Recession Fears Resurface As German Business Confidence Fall Significantly In August

The Munich-based Ifo institute said on Monday that a more than expected fall in the levels of confidence among German business was recorded during August.

The business confidence index of the firm – which is formed on the basis of a survey of 9000 companies, dropped from 95.7 points in July to 94.3 points this month. The report from the agency shows that there has been a dual fall in confidence – both in the view of the current economic situation according to managers as well as in the forecast of the managers about the economic conditions in the next six months.

A drop in the export orders which has primarily been triggered by the trade war between China and the United States which has been ongoing for more than a year now is the primary cause of the fall in the mood in the German business sector. The growing skepticism among executives and managers was also compounded by the political and economic uncertainty surrounding Britain’s upcoming exit from the European Union.

The Ifo index is a closely watched indicator by the markets and investors consider this as a very dependable indicator which gives a glimpse of the future growth in the German economy which is the largest in Europe.

According to Ifo, expectations for Germany’s key industries slid further into negative territory.

The Ifo index showed that in the manufacturing sector there was a decline in the satisfaction with the current situation and the agency said: “Not a ray of light was to be seen in any of Germany’s key industries.”

For the services industry, Ifo report said that a considerably less favorable assessment of the current situation was the cause of the noticeable deterioration in the business climate. The managers and executives also showed growing skepticism for the economic conditions in the near future, Ifo said.

On trade, the agency noted that there was a significantly negative outlook among managers and executives about both the current situation and the future outlookwhich was a trend that was “driven primarily by wholesaling.”

The business sentiment and confidence among managers in the German construction sector saw a slight drop in confidence as companies least expected to see any major change in what it described as “very favorable business conditions”, Ifo reported.

A warning that Germany’s economy could enter recession in the third quarter because of a “sharp contraction” in industrial production was issued last week by the German central bank.

“In the manufacturing sector, the decline in the business climate indicator cannot be halted,” said Ifo president Clemens Fuest. “A similar pessimism among industrial firms was last seen during the crisis year of 2009,” he said.

However, a more optimistic view of the German economy was taken by the Bundesbank President Jens Weidmann in an interview with on the weekend. He saw “no reason to panic” even in the face of warnings of a possible recession being issued from multiple quarters. Only temporary uncertainty which was a result of political factors such as Brexit and international trade conflicts were the reasons for the current economic woes of Germany, he said.

(Adapted from DW.com)

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