Sentiment among businesses in Germany is on a downward trend, falling from 87.0 points in July to 86.6 points in August on the ifo Business Climate Index.Â
“Companies assessed their current situation as worse. In addition, expectations were more pessimistic. The German economy is increasingly falling into crisis,” stated Clemens Fuest, president of the ifo Institute.
Manufacturing sector falls further
In Germany’s manufacturing sector, the index fell considerably with companies significantly less satisfied with the current business situation. Business expectations fell to the lowest level since February as companies once again reported declining order backlogs. “The situation for investment goods manufacturers, in particular, is difficult,” added the August report.
“The recession in Germany’s manufacturing sector deepened in August, with no recovery in sight,” stated Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
Service sector deteriorates
In the country’s service sector, the business climate also deteriorated mainly due to skeptical expectations as the current business situation worsened somewhat.
“The struggles in manufacturing are starting to spill over into the otherwise steady services sector. For the third month in a row, services activity growth has slowed down,” de la Rubia added.
Meanwhile, Germany’s business sentiment in the trade sector rose slightly after declining for two months in a row. ifo attributes this rise to less pessimistic expectations among businesses despite traders being less satisfied with the current business situation.
Construction remains stable
In construction, the index was unchanged. On the one hand, companies were slightly more satisfied with the current business situation. On the other, their expectations declined slightly.
The August ifo Business Climate Index reading aligns with Germany’s PMI reading for the same month, which revealed a decline from 49.1 in July to 48.5 this month. Germany’s private sector economy remained in contraction in August, with business activity falling for the second month straight and at a slightly faster rate. Employment decreased at the fastest rate in four years as firms expressed less optimism towards growth prospects in the coming year.
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