Fears of a recession in Germany grow as business confidence falls

Germany's business climate deteriorated sharply in September, according to a key survey published Monday, the latest sign that Europe's top economy is heading for recession as it faces an energy crisis.

People walk on a shopping street in central Cologne.
People walk on a shopping street in central Cologne. Photo: picture alliance/dpa | Oliver Berg

The Ifo institute’s monthly confidence barometer, based on a survey of about 9,000 companies, slipped 4.3 points to 84.3 from the previous month.

It was the fourth straight month of contraction, taking the indicator to its lowest level since May 2020, with the decline felt across the economy, from manufacturing to the service sector.

“The German economy is slipping into recession,” said Ifo president Clemens Fuest.

“Pessimism regarding the coming months has grown decidedly.”

READ ALSO: Germany ‘faces recession’ as energy crisis bits 

Germany is facing soaring inflation, particularly of energy prices, after Russia cut gas supplies through a key pipeline as tensions mount over the Ukraine war.

While all of Europe is affected, Germany has been hard hit as it was heavily reliant on Russian supplies prior to the war.

A recession in Germany was now “inevitable”, said ING analyst Carsten Brzeski, pointing to “high inflation, surging energy prices, ongoing supply chain frictions and weakening global demand”.

In the survey, confidence in the manufacturing sector — a driver of the German economy – fell particularly sharply, recording a drop of 14.2 points.

Businesses’ assessment of the current situation also fell 3.0 points to 94.5 points.

The barometer was the latest warning that Germany is heading for a contraction, with the OECD also forecasting Monday that Europe’s economic powerhouse would shrink next year.

German GDP grew a slight 0.1 percent between April and June.

Inflation rose at a 7.9-percent rate in Germany in August, well above the two-percent target of the European Central Bank.

Member comments

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


Norway and Germany seek Nato-led cooperation for key undersea structures

Germany and Norway want to start a NATO-led alliance to protect critical underwater infrastructure, their leaders said on Wednesday, weeks after explosions hit two key gas pipelines in the fallout from the war in Ukraine.

Norway and Germany seek Nato-led cooperation for key undersea structures

 “We are in the process of asking the NATO Secretary General to set up a coordination office for the protection of underwater infrastructure,” German Chancellor Olaf Scholz told a press conference in Berlin.

“We take the protection of our critical infrastructure very seriously and nobody should believe that attacks will remain without consequences,” he said.

Norwegian Prime Minister Jonas Gahr Store said the alliance would be “an informal initiative to exchange between civilian and also military actors” with NATO providing “a centre, a coordination point”.

Underwater cables and pipelines were “arteries of the modern economy” and it was necessary to create “a coordinated joint effort to ensure security for this infrastructure”, he said.

Scholz said he and Store would propose the plan to NATO Secretary General Jens Stoltenberg, who is due in Berlin for a security conference. The Nord Stream 1 and 2 gas pipelines off the Danish island of Bornholm were targeted by two huge explosions at the end of September.

The pipelines, which connect Russia to Germany, had been at the centre of geopolitical tensions as Moscow cut gas supplies to Europe in suspected
retaliation to Western sanctions over the invasion of Ukraine.

Although they were not in operation when the leaks occurred, they both still contained gas which spewed up through the water and into the atmosphere.

Russia and Western countries, particularly the United States, have traded bitter barbs over who is responsible for the blasts.

Several European countries have since taken steps to increase security around critical infrastructure. 

The G7 interior ministers warned earlier this month at a meeting in Germany that the Nord Stream explosions had highlighted “the need to better protect our critical infrastructure”.

Norway has become Europe’s main gas supplier in the wake of the war in Ukraine, taking the place of Russia.

The Scandinavian country has a vast network of pipelines, stretching for almost 9,000 kilometres, linking it to the continent, which experts have said are at risk of sabotage.