German business confidence declines further

Survey of managers revealed deep pessimism about the economy

Germany’s business climate cooled for the sixth straight month in October, pushing confidence in Europe’s largest economy to levels not seen since the crisis days of December 2012.

Some 7,000 German managers quizzed by Munich’s Ifo economic institute said they were pessimistic both about their current business situation as well as for the coming six months.

The data prompted an Ifo economist to suggest that zero growth is likely for the fourth quarter in Europe’s largest economy.

“The outlook for the German economy deteriorated once again,” said Prof Hans-Werner Sinn, president of the Ifo institute. “In manufacturing the business climate deteriorated significantly.”


The Ifo index fell in October to 103.2 points from 104.7 points in September, continuing to weigh on prospects for Germany and its EU neighbours.

Several key sectoral indicators have fallen off a cliff in recent months: factory orders, industrial production and exports all experienced their steepest drop since 2009 last August and have continued their slide in October.

Manufacturing showed significant deterioration and managers’ assessment of their current situation is only marginally above the long-term average.

Weighing on Germany's business sectors are EU sanctions against Russia, ongoing Middle East instability and a slowdown in China. After posting a small economic contraction in the second quarter, the Bundesbank has warned to expect only minimal growth for the rest of the year.

"Things have not gone well for German industry and there are no bright spots for industry," said Ifo economist Klaus Wohlrabe, predicting the year would end for Germany with zero economic growth.

The data from Munich yesterday wasn’t all gloom: despite external challenges, managers in the export sector were mildly confident about their expectations while wholesale business managers said they were once again confident about their prospects after three consecutive monthly decreases.

Retailers complained in their survey result of tough trading conditions at present but even they were somewhat brighter about their outlook.

The construction climate index dropped marginally yet remained at a good level, though expectations are at their lowest level in a year.

Finally, a separate Ifo business climate survey, of 2,500 service sector managers, showed greater satisfaction about current business and prospects, with many firms planning to recruit additional staff.

"The latest numbers from the industrial sector are very worrisome," said Mr Jörg Krämer, Commerzbank chief economist in Frankfurt. "The third quarter was probably worse than expected, the economy may have stagnated at best."

Derek Scally

Derek Scally

Derek Scally is an Irish Times journalist based in Berlin