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German Business Confidence Falls as Economy Already Contracting
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Confidence in Germany’s business outlook fell in August as soaring inflation and fears about a possible recession in Europe’s largest economy intensified.
The Ifo Institute’s gauge of business expectations for the next six months inched down to 80.3 from 80.4 in July, though economists had predicted a steeper decline. Current conditions were also assessed more negatively. Still, separate data showed that the economy proved more resilient than initially thought in the second quarter.
As the country rushes to wean itself off Russian energy, business surveys are highlighting Germany as a weak spot within the 19-nation euro zone. Output already began to shrink in July and contracted again in August, S&P Global said in a separate release earlier this week.
The outlook for the coming months is “clearly pessimistic,” said Ifo President Clemens Fuest. “Uncertainty among companies remains high. Economic output is likely to shrink in the third quarter.”
Ifo expects a contraction of about 0.5% in the three months through September on weak private consumption, Timo Wollmershaeuser, a senior economist at the institute, told Bloomberg TV on Thursday.
The Ifo index is seeing the worst declines in the retail sector. “This is of course to do with the high inflation rate we are observing in Germany, which is clearly weighing on the purchasing power of households,” he said.
In the second quarter, a growth rate of 0.1% exceeded a preliminary estimate and helped the country narrowly escape stagnation, though it won’t do much to dispel fears over the outlook.
The expansion was driven by government expenditures, with household spending also contributing, according to a release by the statistics office on Thursday. But the headwinds to growth are getting stronger, with Russia curtailing natural gas shipments, and soaring prices menacing households and companies.
The Bundesbank said this week that third-quarter output will more or less stagnate, while the risk of a contraction in the fourth quarter of 2022 and first quarter of 2023 has increased “considerably.” Inflation, meanwhile, may reach about 10% toward year-end.
(Updates with Ifo comment in fifth paragraph)
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