The declining business climate in Germany was exacerbated by employment falling at the fastest rate in four years.
ADVERTISEMENTBusiness confidence in Germany continues its downward trajectory, signalling broader economic challenges.
The ifo Business Climate Index, which gathers insights from roughly 9,000 German businesses across manufacturing, services, trade, and construction, dropped to 86.6 points in August, down from 87 in July, marking a five-month low.
This decline was driven by deteriorating current business conditions and increasingly pessimistic future outlooks.
“The German economy is increasingly falling into crisis,” remarked Clemens Fuest, President of the ifo Institute.
Manufacturers reported significantly lower satisfaction with the present situation, while service-oriented businesses expressed growing scepticism about the future. Manufacturing sentiment fell to its lowest since early 2020, and the services sector hit its lowest point since February 2024.
German business conditions worsen further
Recent private sector surveys also indicated a downturn in August, with employment shrinking at the fastest rate in four years.
“The recession in Germany’s manufacturing sector deepened in August, with no recovery in sight,” commented Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, as the German Purchasing Managers’ Index (PMI) fell to 42.1, far below expectations, and marking its 26th consecutive month of contraction. Meanwhile, growth in the services sector further decelerated.
“The odds of a second straight quarter of negative growth have gone up, meaning we might be back to talking about a recession in Germany soon,” de la Rubia added.
The German Federal Statistics Office is set to release its second estimate of the second-quarter gross domestic product on Tuesday.
Preliminary data revealed that the German economy unexpectedly contracted by 0.1% in the second quarter of 2024, reversing a 0.2% growth in the first quarter, and missing forecasts of a 0.1% expansion. Year-on-year, the economy also contracted by 0.1%, marking five consecutive quarters without growth.
The European Commission anticipates a modest 0.1% growth for the German economy in 2024, recovering from a 0.3% contraction in 2023, as domestic demand is expected to slowly pick up.
The European Commission expects the German economy to grow 0.1% in 2024, rebounding from a 0.3% contraction in 2023 as domestic demand is set to pick up slowly.
Oil prices climb to $80 amid geopolitical tensions, euro holds at 13-month highs
Meanwhile, European markets experienced slight declines on Monday morning as risk appetite waned due to rising geopolitical tensions in the Middle East.
Brent crude oil futures climbed 1% to reach $80 per barrel, eyeing the third consecutive session of gains.
Geopolitical tensions escalated over the weekend as the Iran-backed militant group Hezbollah launched hundreds of rockets towards Israel, in retaliation for the killing of its top commander, Fuad Shukr, last month.
ADVERTISEMENTIn response, Israel's military stated that it deployed around 100 jets to strike Lebanon in an effort to prevent a larger assault. While Israel's foreign minister expressed a desire to avoid full-scale conflict, Prime Minister Benjamin Netanyahu warned that “this is not the end of the story.”
Meanwhile, negotiations in Cairo regarding Gaza concluded without an agreement.
In Libya, political instability continues to escalate as rival factions vie for control over the central bank and oil revenues. Citigroup noted that these tensions could disrupt the flow of light, sweet crude, potentially driving Brent prices into the mid-$80s.
The euro slipped by 0.1% to 1.1180 against the dollar, after reaching a 13-month high on Friday, buoyed by Fed Chair Powell’s dovish comments at the Jackson Hole Symposium.
ADVERTISEMENTEuropean equities showed little movement, with the Euro Stoxx 50 pausing its recovery after making up earlier losses this month.
The German DAX lagged among major eurozone indices, falling by 0.2%. Notable decliners included Siemens Energy, Qiagen NV, and MTU Aero Engines AG, which dropped by 2.6%, 1.4%, and 1.1% respectively.
