The Ifo business climate deteriorated further in August, falling from 87.0 to 86.6. Companies are increasingly giving up their hopes of an economic upturn. On the contrary, they now realize that the economy has weakened as of late. This does not bode well for the German economy in the coming months, Commerzbank Senior Economist Dr. Ralph Solveen notes.
German economy set to stagnate for the year as a whole
“More bad news for the German economy: the Ifo business climate fell from 87.0 to 86.6 in August, continuing the downward trend that began in the spring. This means that the indicator's increase in the first few months of this year has proved to be a false signal. A recovery of the German economy in the coming months is becoming increasingly unlikely.”
“A look at the sub-components shows that the decline in August is primarily due to an (even) worse assessment of the current situation. However, expectations have also deteriorated further, having already fallen significantly in recent months. They are now only slightly more positive than at the start of the year. While there have been ups and downs in expectations over the past two years, the assessment of the situation has shown a clear downward trend for almost three years.”
“The current renewed disappointment among companies is more difficult to explain. The adjustment to the higher interest rate level may take longer than expected and the uncertainty among consumers seems to be lasting longer. Added to this are the numerous structural problems in the German economy, which are slowing down the underlying momentum of the economy. This suggests that the German economy will barely grow in the second half of this year and will at best stagnate for the year as a whole. We expect a meagre increase of 0.5% for 2025.”
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