German business confidence shaken as economy fails to grow

Germany continues to flirt with disaster as its economy failed to grow again in the second quarter, leaving managers fearing for their firms’ prospects.

After two consecutive negative quarters, Germany’s economy official figures released on Friday showed zero growth. Presenting figures that, technically speaking, lift Germany out of technical recession, federal statistics office president Ruth Brand said the “0.0 per cent” growth rate meant the economy was “stabilising”.

But a closer look at the second quarter data showed ongoing cause for concern: the year-on-year adjusted GDP contracted by 0.2 per cent in the second quarter as exports slid 1.1 per cent and imports stagnated.

German inflation remains at 6.2 per cent – above the 5.3 per cent euro average – and continues to squeeze spending.

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The International Monetary Fund predicts that Germany, Europe’s largest economy, will be the only advanced economy to shrink this year. It has forecast a German contraction of 0.3 per cent compared with 0.9 per cent growth on average for others in the survey.

That and other forecasts have fanned fears of the winter to come and triggered the first predictions of another quarter of negative growth in the autumn.

Looking ahead on Friday, Munich’s Ifo economic institute said “Germany’s lean period is dragging on”. Surprising many experts, its closely-watched business climate index dropped once more from 87.3 last month to 85.7.

As with official forecasts, the Ifo survey of 9,000 managers flagged as the main problems weak purchasing power, emptying industry order books and a slowdown in the Chinese economy – on top of the tighter monetary policy from the European Central Bank.

Managers’ assessment of their current prospects has dropped to its lowest level in three years while the key manufacturing index is now negative for the first time since October 2020.

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For VP bank economist Thomas Gitzel, the latest Ifo slide is “tantamount to the kick in the stomach”, as pandemic order backlogs have been worked off but new orders are not coming in as people save rather than spend.

“If impulses are not to be expected from industry or private consumption, the German economy is likely to remain in difficulty.”

According to the Pantheon Macroeconomics forecast, “Germany will be the worst performing among the euro zone big four”.

“Both the short-term and the longer-term outlook for Germany are looking anything but rosy,” said Carsten Brzeski, ING macroeconomics chief.

The Bundesbank expects economic output to remain largely unchanged in the third quarter, according to its monthly report published on Monday.

It insisted the labour market is rallying and that wage increase would boost private consumption, even if exports remain weak due to poor foreign demand.

Leading economist Marcel Fratzscher shrugged off the latest Economist cover story on Germany, describing it once more as “the sick man of Europe”. Calling for a multibillion state spending programme, the president of the DIW economic institute added: “Germany could yet become the sick man of Europe again unless it uses its strengths wisely”.