According to a survey released on Thursday, German business morale fell to its lowest level since June 2020, owing to significant uncertainty caused by the Ukraine war, the resulting energy crisis, and fears of an economic slump in the third quarter.

The Ifo institute’s carefully monitored business climate index dipped for the third month in a row, but less than predicted, to 88.5 from an upwardly revised 88.7 in July. Analysts polled by Reuters predicted an August reading of 86.8.

Analysts saw the slight month-on-month change as a welcome surprise, but they maintained their concerns about an impending recession.

“Things could well have been worse,” said Thomas Gitzel, head economist at VP Bank. “But there is no reason to breathe a sigh of relief.”

“Uncertainty among the companies remains high, and the German economy as a whole is expected to shrink in the third quarter,” Ifo President Clemens Fuest stated.

According to Ifo head of surveys Klaus Wohlrabe, Europe’s largest economy will likely contract by half a percentage point in the third quarter.

The German economy increased 0.1% in the second quarter, according to the statistics agency, exceeding predictions of stagnation in line with a flash estimate in July. 

According to the study of about 9,000 enterprises, the manufacturing business climate remained stable in August, while service providers perceived the current situation as slightly better.

Wohlrabe told Reuters that the number of companies complaining about material and supply shortages was at its lowest in well over a year, at 62%, down from 73% the previous month.

Joerg Kraemer, chief economist at Commerzbank, said that the index was still in recession zone and that the gas problem was affecting both businesses and consumers.

“We expect the second half of the year and the first quarter of next year to be more recessionary than ever,” he said.

As Russian energy giant Gazprom (GAZP.MM) has reduced supply via the Nord Stream 1 pipeline, European countries have been racing to fill their gas storage facilities, raising concerns about a probable gas shortage this winter.

Source: Reuters

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