Falling sentiment hints at looming German recession

Germany Reichstag 200

German business sentiment has fallen for a fifth month running despite the recent move by the European Central Bank to bring stability to the eurozone.

September’s Ifo Business Climate Index for German industry and trade came in at 101.4 points, down from the 102.3 recorded in the previous month. Economists had expected to see a slight rise in the index.

Ifo Institute president Hans-Werner Sinn says: “The companies surveyed are again less satisfied with their current business situation. They also expressed greater pessimism about the future. The curbing forces on the German economy continue to prevail.”

The business climate in the German manufacturing sector continued to “cool significantly” in September, the index shows, as companies’ outlooks for the coming six months remain negative. Conditions in construction also worsened during the month, while only marginal improvements were seen in trade.

IHS Global Insight senior German economist Timo Klein says: “The main reason for deteriorating business confidence continues to be concern about damaging effects of eurozone debt crisis developments.”

Economists warn that falling sentiment suggests the eurozone’s largest economy is heading towards recession.

Capital Economics senior European economist Jennifer McKeown adds: “September’s fall in the German Ifo business survey is a reminder that even the eurozone’s strongest economies are suffering from a serious economic downturn.”

Earlier this month, the ECB unveiled details of its sovereign bond-buying programme, which will allow it to buy unlimited government debt on the secondary market to help bring down borrowing costs for countries on the eurozone periphery.

However, the expected decline in German economic growth could make it more difficult for the eurozone to channel additional support to its weaker members.

McKeown says: “While Germany might have avoided a recession in Q3, it seems like only a matter of time before the economy starts to contract. This will make support for the peripheral economies even more difficult to muster.”