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The economic mood in Germany has deteriorated again, as shown by the latest results of the ifo business surveys in August. The ifo Business Climate Index, a key indicator of the country's economic development, fell to 85.7 points. This marks the fourth consecutive decline and highlights the continuing uncertainty in the boardrooms of German companies.
The downward movement of the business climate index signals a further deterioration in economic conditions compared with the previous month. In July, the index still stood at 87.4 points. Of particular concern is that the assessment of the current business situation has reached its lowest level since August 2020. This indicates an already tense economic situation that has steadily worsened over the course of the year.
Company expectations for the coming months have also become significantly more pessimistic. German companies are looking to the future with skepticism, indicating ongoing challenges and uncertainties. The lack of new orders is cited by many companies as one of the main reasons for this pessimistic outlook.
A closer look at the various sectors of the economy shows that uncertainty is being felt in several sectors. In manufacturing, the business climate index has fallen, due in particular to companies' dissatisfaction with current business. This is also reflected in the negative figures for the current business situation indicator, which slipped into negative territory for the first time since October 2020.
The service sector also recorded a noticeable cooling of the business climate. Service companies are less satisfied with their current situation and expect it to deteriorate further. This weakness is also affecting the transportation and logistics sector, which is also being impacted by industrial uncertainty.
The retail sector is also seeing a decline in business confidence. Retailers are taking a more negative view of their current situation and are also increasingly skeptical about future developments.
Even the construction sector, long considered relatively stable, is experiencing a downturn in the business climate index. Companies are expressing more dissatisfaction with their current business and are increasingly pessimistic about the months ahead.
Clemens Fuest, President of the Ifo Institute, comments on these developments: "The continued deterioration in the business climate signals that the German economy remains in a phase of uncertainty and weakness. The ongoing lean period poses major challenges for companies and may require targeted measures to stabilize them."
The ifo Business Cycle Clock visualizes this uncertainty in a four-quadrant scheme that illustrates the cyclical relationship between the business situation and business expectations. This analysis shows that the German economy is currently stuck in the "cooling quadrant," which indicates a deteriorating business situation combined with expectations that are still above average.
Overall, the current figures of the ifo Business Climate Index highlight the ongoing challenges facing the German economy. Uncertainty in executive suites is reflected in negative expectations and reduced satisfaction with the current business situation. It remains to be seen if and when the economic climate will change for the better again.