Germany is facing an even LONGER recession than feared as business morale slumps

Germany is likely to face an even longer recession than analysts predicted after a recent survey found that business morale in the country continued to decline for the second month in a row.

The Ifo Institute for Economic Research in Munich said the business climate index fell to 88.5 this month from 91.5 in May – a significant drop of more than 1.5 points further than forecast.

“Sentiment in the German economy has noticeably clouded,” said Ifo chairman Clemens Fuest.

Germany’s gross domestic product (GDP) fell by 0.3 percent from January to March, according to figures released last month. boldly doubles its growth forecast for this year.

The government forecast GDP to grow at 0.4 percent – up from a 0.2 percent growth forecast at the end of January – a forecast that is now likely to need to be revised downwards.

It comes as the International Monetary Fund (IMF) was forced to admit last month that it had misjudged its forecast of the post-Brexit UK economy, which will now avoid recession despite the withdrawal from the EU.

The government of German Chancellor Olaf Scholz was embarrassed last month when new figures showed that Germany’s GDP fell by 0.3 percent in the first quarter of 2023, despite the government doubling its growth forecast for this year

The IMF foundation now expects the UK economy to grow by 0.4 percent in 2023, despite announcing last month that it would shrink by 0.3 percent.

In Germany, the forecasts are gloomier, with several economists predicting that their economy is heading into a longer recession.

“The slump in the German Ifo, along with the fall in the Purchasing Manager’s Index (PMI), suggests that German GDP in the second quarter probably contracted for the third quarter in a row,” said Franziska Palmas, senior European economist at Capital Economics. .

The economic research firm expects the economy to remain in recession throughout 2023.

“We feel confirmed in our forecast that the German economy will contract again in the second half of the year,” said Joerg Kraemer, Commerzbank’s chief economist.

And Carsten Brzeski, global head of macro at ING, said: ‘What is clear is that the optimism at the beginning of the year seems to have given way to more realism.’

The economy faces the prospect of a longer recession as both domestic demand and exporter expectations have weakened, Klaus Wohlrabe, head of Ifo surveys, said in an interview with Reuters on Monday.

“The likelihood has increased that gross domestic product will contract in the second quarter as well,” he said.

German Chancellor Olaf Scholz spoke at the celebration of the 25th anniversary of the European Central Bank (ECB) in Frankfurt last month. Despite positive forecasts from the German government, the German economy has entered a recession

Meanwhile, the Bundesbank said on Monday it believes Germany’s recession will soon be over and gross domestic product will rise slightly in the second quarter of 2023.

“Private consumption must be bottoming out,” experts from the German central bank wrote in the report.

‘Thanks to sharply rising wages, real disposable incomes of private households are stabilizing despite very high inflation.’

But the Ifo survey found that many sectors of the German economy were concerned about the economic outlook, especially manufacturing which recorded the biggest deterioration of the month.

“It is clear that industry remains under pressure from declining demand, in line with Friday’s PMIs, which saw industry in the eurozone’s largest economy deep into contracting territory amid rapidly shrinking backlogs and destocking.” , says Mateusz Urban, senior economist at Oxford Economics.