German business sentiment falls in August, delaying recovery hopes

German business morale fell for a third consecutive month in August, a survey showed on Monday (August 26), pushing back recovery hopes for Europe’s largest economy.

The Ifo Institute said its business climate index fell to 86.6 in August from 87.0 in July, though it came in above a forecast by analysts polled by Reuters for a reading of 86.0.

“The German economy is increasingly falling into crisis,” said Ifo president Clemens Fuest. Companies were both more pessimistic and assessed their current situation as worse, Ifo found in its survey of around 9,000 managers. The mood in the industry, in particular, has noticeably deteriorated, while service providers also saw a dip, Ifo found.

“The German economy has settled into stagnation,” said Ifo economist Klaus Wohlrabe, citing a lack of order across all sectors and weak investment and adding that consumers were reluctant to spend due to uncertainty over inflation.

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Wohlrabe predicted that the third quarter could bring a further decline in German gross domestic product (GDP), which unexpectedly contracted by 0.1% in the second quarter.

The index measuring current conditions fell to 86.5 from 87.1 the month before, while expectations were down only slightly, at 86.8 from a slightly upwardly adjusted 87.0.

NO GROUNDS FOR OPTIMISM

“There are not too many reasons for optimism at the moment,” said LBBW bank’s Elmar Voelker. He listed a bumpy global economy, geopolitical risks and the looming U.S. presidential election in November as factors likely to dampen hopes of any improvement before the end of the year at the earliest.

VP Bank chief economist Thomas Gitzel also saw no economic recovery happening “for the time being”. “The German economy continues to ride on a razor edge between recession and minimal growth,” Gitzel said.

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The Ifo survey is in line with the latest purchasing managers’ index (PMI) data, which saw business activity contract in August for a second month in a row and by more than expected.

Together they are part of a raft of indicators that so far this quarter point to anaemic expansion for the economy. Germany’s Bundesbank said last week that a recession was unlikely, though the overall outlook remained muted.