Business confidence drops to 14-month low

German business confidence fell sharply this month, the Ifo economic research institute said Wednesday as it released the latest in a series of bleak indicators for the top eurozone economy.

Business confidence drops to 14-month low
Photo: DPA

The monthly Ifo business climate index plunged to 108.7 points from 112.9 points in July – the measure’s lowest level since June 2010 – underscoring a sharp slowdown seen also in eurozone consumer confidence.

German business expectations for the coming six months fell as well, a development noted with particular concern by many analysts.

The latest Ifo poll was well below expectations of a decline to 111 points and was the biggest drop since the index lost 4.9 points in November 2008.

“Recent financial market turmoil and the never-ending eurozone sovereign debt crisis have befogged the outlook for the German economy,” ING senior economist Carsten Brzeski commented.

A sub-index that measures companies’ expectations for the next six months dropped to 100.1 points from 105. A figure below 100 indicates a downturn.

It was the expectations’ lowest level since October 2009 and was singled out for concern because it “has the best track record of anticipating” growth, Markit chief economist Chris Williamson said.

UniCredit counterpart Andreas Rees noted that “it was the sixth consecutive decline in expectations, i.e. there can absolutely be no denying that this is a downward trend.”

An Ifo statement quoted president Hans-Werner Sinn as saying: “The current business situation, however, continues to be assessed overall as good, although the situation appraisals in recent months were significantly more favourable.”

The sub-index of companies’ assessment of their current situation fell to 118.1 points from 121.4 points in July.

The survey of around 7,000 firms showed falls in all categories – manufacturing, retailing and construction.

In retailing, “the optimism of the distributing firms regarding the six-month business outlook has largely dissipated,” Ifo said, backing up an EU Commission survey of consumer confidence that was released on Tuesday.

That poll’s fall of 5.4 points to minus 16.6 points was a sharper drop than one seen in October 2008, after US investment bank Lehman Brothers collapsed, setting off the global financial crisis and recession.

“The Ifo survey data, therefore, add to a growing picture of rapidly deteriorating business and household confidence in Germany,” Williamson said.

“Worries have intensified in recent weeks as economic data have shown growth faltering, financial markets have slumped and policymakers appear unable to resolve the region’s financial crisis,” he added.

Meanwhile, eurozone industrial orders also surprised economists on the downside, showing a decline of 0.7 percent in June instead of an anticipated gain of 0.5 percent, EU data showed.

On Tuesday, Markit’s purchasing managers index for eurozone private sector activity showed it stagnating in August while the ZEW index of German investor confidence slumped for the sixth month running to a level last seen in December 2008.

Commerzbank chief economist Joerg Kraemer said the debt crisis would decide if Germany faced only a soft patch or a more serious downturn.

“If it escalates and Italy and Spain are cut off from the capital markets and default, this would likely trigger a global uncertainty shock similar to after the Lehman bankruptcy. The economy would then enter a serious recession,” he warned.

Berenberg Bank senior economist Christian Schulz said that “further hits to confidence cannot be excluded and the risk of a recession remains high.”

Economists agreed that the European Central Bank would refrain from raising its main interest rate again this year, having hiked it twice by 0.25 percentage points to 1.50 percent.


Member comments

Log in here to leave a comment.
Become a Member to leave a comment.
For members


7 tips for how to survive as a freelancer in Germany

Taking the decision to go it alone and freelance in Germany can be a daunting prospect. But, if you do it right, it can be an exciting and liberating path. Here are some of our top tips on how to survive.

7 tips for how to survive as a freelancer in Germany

1. Get a tax advisor

The German tax system is complicated, even for Germans. All the associated paperwork uses the Amtsprache (authority language) which is more like legalese than ‘normal’ German, and mistakes when filling out tax forms can cause you, at best, a massive headache and, at worst, a costly fine. So it’s best that you employ someone who knows what they’re doing to help you out.

That person is called a Steuerberater (tax advisor) in Germany. They will help you register with the tax office, correspond with them and submit your tax declarations.

Be aware that, in Germany, different deadlines apply for tax returns depending on whether you employ an official tax advisor or not. If you are doing the tax return on your own, the deadline for submitting your annual tax return is earlier than if you use a tax advisor’s services. 

READ ALSO: What NOT to do when you’re freelancing in Germany

When looking for a tax advisor, a top tip is to use your network to get recommendations. Ideally, you want someone who will do more than just fill in the forms for you, but who will actually advise you on how best to manage your business finances so that you can make tax savings.

2. Keep your accounting in order

The better you keep your own accounts in order, the easier it will be for your tax advisor to compile your tax declarations and therefore the cheaper their services will be.

As a freelancer, there are a lot of costs you can deduct from your taxes – from train tickets, working materials, to meals out – so it’s best to keep hold of all your receipts and to keep them in good order.

2 euros and 50 cents lie on a receipt in a beer garden. Photo: picture alliance/dpa | Peter Kneffel

In Germany, you’re obliged to keep hold of receipts for two years, in case of a tax inspection, so it’s a good idea to photocopy the type of machine-printed receipts you get from restaurants so that they stay legible for a long time.

There are also a few things to be aware of when writing your own invoices. Firstly, make sure that you include your tax number. This isn’t the 11-digit Steueridentifikationsnummer that everyone gets when registering in Germany, but the 10-digit Steuernummer you get from the Finanzamt after registering yourself as a freelancer. 

Most companies won’t pay you if you don’t have this on your invoices so make sure you include it.

You should also make sure that you number your invoices properly – ideally in ascending order so that you can easily keep track of them. You are not allowed to issue two invoices with the same number and if you do so and the finance office notices, you could face an inspection of your whole accounting system.

There are numerous great accounting software programmes you can use to help you, such as Lexoffice and Sevdesk and, even if you have to pay for them, the costs will be tax deductible!

3. Find out if you’re eligible for financial support

In Germany, there are several opportunities for freelancers to gain financial support and to cut their outgoings, and its worth finding out if you’re eligible for them.

If you’re claiming unemployment benefits under ALG 1 and are thinking about becoming a freelancer, the employment office offers a special type of financial support to help you to get your freelance business off the ground.

Called the Grundungszuschuss (“foundation grant”) the payment is a six-month grant equalling your monthly entitlement under ALG 1 plus €300 towards your insurance costs can be applied for those in receipt of this unemployment benefit.

READ ALSO: Will freelancers benefit from Germany’s €300 energy allowance?

If you are engaged in some form of artistic profession in Germany – which can include journalism to pottery – you may be entitled to membership to the Kunstlersozialkasse (artists’ social insurance).

Being a member of the KSK means you only have to pay half of your health insurance and pension contributions, and the KSK will pay the rest.

4. Work out how much you think you will earn

As with starting any business, you need to have some idea of your expected earnings from the outset.

If you’re just starting out as a freelancer, or have some freelance gigs on the side of an employment position, then it might be worth considering registering yourself as a Kleinunternehmer (“small business”).

As a Kleinunternehmer, you can currently earn up to €22.000 per year without having to charge VAT and having to submit only yearly tax declarations. 

An income tax declaration form lies on a table. Photo: picture alliance/dpa/dpa-Zentralbild | Hans-Jürgen Wiedl

Be aware that if you are registered as this kind of freelancer, you must include the following sentence in your invoices: ‘Gemäß § 19 UStG wird keine Umsatzsteuer berechnet’ which means ‘In accordance with Paragrah19 of the German VAT law, no VAT has been added to this invoice.’

READ ALSO: Everything you need to know about your German tax return in 2022

If you think you will earn more than €22.000 per year, you will need to pay Umsatzsteuer (VAT) and will have to submit tax declarations in advance and more often. Depending on how much you earn, this could be every month or every quarter. 

5. Get your insurance in order

In Germany, it’s a legal requirement to have health insurance.

If you’ve just made the move from employment to being a freelancer and want to keep the same health insurer, you should get in contact with your health insurance provider straight away to tell them about your change of circumstances. They will ask you to re-register and to tell them your projected freelance earnings for the year, so they can amend your monthly fees.

If you don’t keep your health insurer provider updated, you could continue to be charged the higher rate that you had from your previous salary.

The insurance cards of the health insurance companies DAK, AOK, Barmer and Techniker-Krankenkasse TK lie with euro notes under a stethoscope. Photo: picture alliance / dpa | Daniel Karmann

It’s not just health insurance you need to think about as a freelancer. It’s also wise to think about protecting yourself from any sort of claims that could arise as a result of any working mishaps. 

If, for example, you lose your laptop which contains confidential client information, you need to be protected against claims.

That’s why it’s good to have both Betriebshaftversicherung (business liability insurance) and Rechtschutzversicherung (legal protection insurance).

6. Plan your time wisely

All of these bureaucratic obligations take time. So it’s really important that you take account of that when planning your time. For example, planning half a day a week to deal with your invoices, filing, emails to clients, and conversations with authorities can be really beneficial when scheduling your working time. 

7. Grow your network

As a freelancer, networking is absolutely crucial to success. 

Keep an up-to-date profile on websites like LinkedIn and German equivalent XING and keep in contact with anyone you’ve ever worked with, no matter how brief the contact was. 

Having a network is not only about getting more clients, but also about building a support network in your field to exchange advice, tips and generally for your own enrichment. 

Participating in workshops related to your field, going to seminars, and meet-ups, can be great ways of broadening your network.