German Business Confidence Remains Low As Analysts Warn Of More Recession

The business environment across Germany has dropped significantly in July for the third consecutive month, according to a survey. Analysts have warned that the economic recession in Germany has been struggling to make a recovery after falling into a recession earlier this year.

German business confidence remains low

The Ifo Institute has said that the business climate index now stands at 87.3 after the revised reading of 88.6 that was announced in June. The drop has been significantly bigger compared to the forecast. According to Reuters, a previous poll had expected the July reading to reach 88.0.

The chief economist at VP Bank, Thomas Gitzel, noted that the German economy was yet to recover from the effects of the COVID-19 crisis. The analyst noted that the main issue that was being faced was the cyclical gains that were not being accompanied by a positive growth rate in GDP.

Gitzel noted that the growth that was currently being seen as fragile as it was not accompanied by solid fundamentals. Germany is the largest economy in Europe, and it has been facing a recession following the effects of the geo-political situation in Ukraine, crude oil prices and rising inflation that has necessitated interest rate hikes.

Germany enters a technical recession

Germany entered a technical recession in early 2023. A technical recession is defined as having two consecutive quarters of contraction in the economy. The preliminary GDP data for the second quarter is expected this week, and it will show any possible hints of a recovery in the economy.

Gitzel has predicted that there would be a slight growth in GDP during the second quarter. This GDP was expected to increase by 0.1%, and it was followed by a decline in the third quarter. These predictions come as the global economy shows a sign of weakness and growing concerns about the energy industry.

The global head of macro at IMG, Carsten Brzeski, commented on this development, saying that the German economy had been feeling the effects of the reopening of the Chinese economy, whose recovery has been weaker than what has been hoped for.

The slow recovery can also be attributed to the looming recession in the US, and the monetary tightening policy, with the Federal Reserve increasing rates by 25 basis points recently. The European Central Bank is also expected to hike rates again this week.

The technical recession across Germany appears to be affecting businesses operating in the country. A wide range of indicators have shown that the German economy has a gloomy outlook, with the sluggish output triggering a drag across the eurozone.

Besides Germany, many global economies also appear to be feeling the pressure of a recession. In July, the S&P Global composite PMI index that includes services and manufacturing plunged below the 50-mark, showing a decline in activity for the first time since the start of the year and pointing towards the possibility of a longer recession. The global demand is also expected to slow down further, increasing the chances of a recession.