Negative surprise in IFO Business Climate Index results
The economic climate in Germany is grim and growth is minimal at best. The IFO business sentiment index shows no signs of substantial improvement, with many businesses becoming increasingly pessimistic.
June saw a surprising worsening of the economic mood in Germany. The IFO business climate index dropped to 88.6 points from 89.3 points in the previous month, marking two straight declines. Economists surveyed by Reuters had anticipated an increase to 89.7 points. Businesses remained skeptical about their current situation and grew even more skeptical about the future.
IFO President Clemens Fuest stated, "The German economy is struggling to break free from stagnation." Munich researchers also shared a disappointing conclusion: "The German economy is still waiting for its summer miracle." In several sectors, orders were scarce, and demand remained weak. Private consumption, however, was hoped to be the engine for a strengthening economy in the second half of the year.
Jens-Oliver Niklasch, an analyst from LBBW, commented on the IFO Index, "This number is as grim as it appears. There's no sign of recovery in Germany." The outlook and expectations grew darker yet, remaining at a low level. "It's unclear where the growth catalyst for 2025 will come from," said Niklasch. It's likely that economic output in the current second quarter is on the brink of stagnation, and there's little hope for better figures in the third quarter. "We're just learning to accept this prolonged stagnation," said Niklasch.
Trade Decline
IFO Chief Fuest noted, "The business climate in manufacturing has taken a hit after three consecutive rises." Businesses are again more pessimistic about the future. "The declining order backlog is causing concern for companies." The service sector mood is improving, while the business climate in trade has significantly worsened. In construction, the index fell slightly, due to less pessimistic expectations. However, businesses assessed the situation more negatively due to a lack of orders.
The economy avoided a recession at the beginning of the year due to increased exports and construction spending. Between January and March, it grew by 0.2 percent, the strongest growth in a year. The Bundesbank and other experts had predicted that the recovery would continue in the current second quarter. For momentum, private consumption was expected, particularly due to easing inflation.
Overall, the gross domestic product, or the sum of all produced goods and services, was forecasted to grow by 0.3 percent. The German Industry and Trade Chamber (DIHK), based on a survey of more than 24,000 companies from all industries and regions, however, anticipates stagnation.
