(Bloomberg) — Germany’s business outlook worsened again – reinforcing fears that Europe’s biggest economy is in a recession with no quick rebound imminent.
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The Ifo institute’s expectations gauge dipped to 86.3 in September from 86.8 the previous month. That’s still the lowest since February and slightly below what analysts in a Bloomberg poll had seen. A barometer of current conditions declined more strongly.
“The key weakness is really manufacturing, which is so important,” Ifo President Clemens Fuest told Bloomberg Television on Tuesday. “We see this weakness across the board really — machinery, the chemical industry, electrical equipment and the car industry. Companies are telling us we are lacking orders. Now, on top of that, we have weaknesses in the service sector.”
Talk of Germany’s economic decline is growing louder after a spate of bad news underscored weaknesses in its key auto sector. The underperformance is weighing on the euro area as a whole, with an early-year recovery in the 20-nation bloc fizzling out. Some help is arriving through looser monetary policy from the European Central Bank.
While stressing that a severe economic slump looks unlikely, the Bundesbank has warned that Germany may already be in recession, with another contraction in the third quarter possible after a 0.1% decline in the second. It’s president, Joachim Nagel, will give a speech on the economy later Tuesday.
S&P Global said Monday that its latest Purchasing Managers’ Index for Germany fell more than anticipated, to 47.2 – the lowest level in seven months and well below the 50 mark that separates growth from contraction. For the euro zone, the composite gauge unexpectedly dropped below that threshold.
“The latest news perhaps implies a weaker near-term outlook,” ECB Governing Council member Madis Muller said Tuesday. Even so, “it’s early to express a clear position on the interest-rate decision in October. It will be easier to decide in December because then we’ll again have a full picture with an updated outlook.”
Markets are now leaning toward a third reduction of the year in the deposit rate on Oct. 17, bringing it to 3.25%.
Economists have already begun lowering economic predictions for 2024, with some now seeing stagnation or another slight downturn. Germany, which has suffered particularly amid sub-par demand in China, was the only Group of Seven economy to contract in 2023.
“We cannot exclude that we will end up with a negative growth number this year,” Fuest said. “A lot will depend on consumption and that could be a countervailing effect. So far we do see rising disposable incomes, but that doesn’t translate into consumption. So the savings rate has increased suggesting maybe that people are worried about the future.”
–With assistance from Joel Rinneby, Kristian Siedenburg, Tom Mackenzie and Ott Tammik.
(Updates with ECB’s Muller in seventh paragraph.)
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