As the fall of winter looms, German business morale plummets

A woman wearing a protective mask walks past the skyline of the financial district at sunset as the coronavirus disease (Covid-19) continues to spread in Frankfurt, Germany, Oct. 26, 2020.

BERLIN, Sept 26 (Reuters) – The German economy is headed for recession, the Ifo institute said on Monday, as Germany plunged into business morale across all sectors to avoid gas shortages this winter.

The Ifo Institute’s business climate index fell to 84.3 from 88.6 in August, a worse decline than the 87.0 forecast by economists in a Reuters poll.

It was the lowest level seen since the early stages of the Covid-19 pandemic in May 2020.

The decline was seen in all four sectors of the German economy, the Efto said, with disillusionment rising sharply ahead of the coming months.

“We are seeing fat reduction on all fronts,” said Ifo economist Klaus Wohrbe. “Price estimates have increased again, more than one in two companies have announced a price increase.”

In August, German producer prices rose by 7.9% last month, fueled by rising energy prices.

Commerzbank economist Jörg Cramer said the September Ifo survey “points to the biggest decline ever in the middle of the year”.

“The energy price shock is eroding consumer purchasing power and making production unprofitable for many companies,” Cramer said.

As part of an economic crisis caused by the war in Ukraine, gas flows to Germany have been sharply reduced, sending energy bills to German households and businesses and forcing the German government to consider rationing this winter.

On Monday, the OECD forecast that the German economy will shrink by 0.7% next year, down from the 1.7% growth forecast in June.

Reporting by Rachel Moore, Frank Siebelt, Christina Amann and Miranda Murray; Editing by Alex Richardson

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