Germany’s business outlook deteriorated to the lowest seen this year, evidence that Europe’s biggest economy is struggling to cement a recovery after a recent recession.
(Bloomberg) — Germany’s business outlook deteriorated to the lowest seen this year, evidence that Europe’s biggest economy is struggling to cement a recovery after a recent recession.
An expectations gauge by the Munich-based Ifo institute fell to 83.6 in June from 88.3 in the previous month. The outcome was much worse than anticipated by any economist in a Bloomberg survey. A measure of current conditions also fell.
“Above all, the weakness in the manufacturing sector is steering the German economy into turbulent waters,” Ifo President Clemens Fuest said Wednesday in a statement.
The report underscores how industrial doldrums around the advanced world amid weakening demand from China are weighing on Germany’s factory base, the motor of growth in the wider euro area.
Output has yet to see a “noticeable pickup,” the country’s Economy Ministry said this month after a slump that dragged the rest of the region into a recession too. The Bundesbank predicts an overall contraction of 0.3% for this year.
Germany Loses Momentum as Services Slowdown Weighs on Economy
Confirming that picture, a survey of purchasing managers published Friday showed that German economic activity lost much more momentum than anticipated in June, driven by a slowdown in services and sustained weakness at the country’s factories.
A separate report released at the weekend pointed to glimmers of hope. Business confidence is returning to Germany, despite the recent economic downturn, as energy costs decline, a survey by banks of 1,000 small and medium-sized enterprises showed.
Still, 400 basis points in tightening by the European Central Bank are likely to impose an increasing brake on expansion as months go by.
Bundesbank chief Joachim Nagel has signaled he would be in favor of a further quarter-point move beyond one already slated for July, given that inflation remains undefeated.
German price growth probably surged again in June because of the year-ago comparison with last summer, when ultra-cheap public transport was unveiled. Those data later this week may contrast with inflation from the three other big economies of the euro area, which are all projected to show declines.
Germany’s inflation outlook also seems less benign than the rest of the region. While ECB projections this month showed inflation slowing to an average of 2.2% in 2025, the Bundesbank’s forecast for its own economy is 2.7%.
–With assistance from Joel Rinneby and Kristian Siedenburg.
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