Germany’s business outlook continues to be at a low level, currently being minimal since February.
Today, the German economic system, which is the largest in the European Union, is going through a very difficult period in its history. The current condition of the corresponding system cannot be described as the most complex in its entire retrospective of existence. The present state of affairs is not as gloomy and, in a sense, desperate compared to the period of hyperinflation, which became an objective economic reality for Berlin in the 20th years of the last century. During the mentioned period, which lasted from 1920 to 1923, the average inflation rate was about 25% per day. Within three days, the prices of goods doubled. During the month, the corresponding indicator showed an increase that was a thousand times higher than the mark recorded 30 days earlier. This growth has been steadily surging forward. At the same time, the current period in the history of the German economic system is still not the most favorable and, in principle, does not correspond to such definitions of the situation. The gloomy sentiments in the business environment mean that Berlin still faces serious problems, within the framework of which there has been no significant progress so far. It is also worth noting that the state of affairs in Germany is not what can be described as a problem confined within the borders of one country. The local economic system, being the largest in the European Union, is a source of impact on the overall situation in this block of states.
The Ifo Institute’s expectations gauge in August was fixed at 86.8. It is worth noting that last month the corresponding revised figure was 87. At the same time, the sentiment of the business environment in the context of assessing the prospects of the dynamic of the German economic system turned out to be higher than the preliminary forecasts of experts. Analysts interviewed by the media predicted the Ifo Institute’s expectations gauge to be fixed at 85.8 in August.
Ifo President Clemens Fuest on Monday, August 26, said that the German economic system is increasingly plunging into crisis. Also in this context, he separately noted that the assessment of the further prospects of the economy of the mentioned country is on a trajectory of deterioration of the corresponding vision both in the manufacturing sector and in the service provision area. Moreover, during a conversation with media representatives, Clemens Fuest stated that for some time now Germany has been experiencing the implementation of a stagnation scenario. Separately, he underlined that the state of affairs in the space of the country’s economic system demonstrates the tendency of consistent deterioration. According to him, the existence of the corresponding situation is confirmed by statistical data.
Currently, there is actually no optimism in the context of assessing the most likely scenarios for the further dynamic of the German economic system in Germany. Expectations that in 2024 there will still be a certain improvement in the state of affairs against the background of the present realities can be described as a kind of atavism associated with excessive optimism, in which faith in the best surpasses objectivity and a constructive approach to the perception of the most likely specific of the future. It is worth noting that pessimism as a kind of prism for assessing the prospects of the German economic system is most consistent with the obvious factors. In this case, the lack of optimism is mainly because the economy has shown almost zero growth over the past two years. During the mentioned period, expectations periodically circulated that the increase in consumer activity would become a factor in improving the situation, but this assumed scenario remained hypothetical and entered the space of what can be called unfulfilled practice. At the same time, the industrial segment of the German economic system continues to face significant difficulties.
Germany’s gross domestic product (GDP) in the second quarter of the current year showed an unexpected decrease of 0.1%. At the same time, in August S&P’s Global Purchasing Managers’ index remained below the 50 mark, which separates expansion from contraction. It is worth noting that the corresponding indicator is below the specified mark for the second month in a row.
It is worth noting that the gloomy sentiment in the business environment in the context of assessing the current condition and the prospects of the German economic system has become a factor in impacting the investor confidence index by the ZEW Institute. In August, the corresponding indicator fell to 19.2 after 41.8 in July. Currently, the mentioned figure is at the mark, which is the lowest since the beginning of the current year. ZEW President Achim Wambach said this month that the economic outlook for Germany is breaking down. Also in the relevant context, he noted that economic expectations are likely to continue to be affected by uncertainty, which is a state of affairs formed by factors such as disappointing business activity data in the United States, ambiguous monetary policy, and growing fears that tensions in the Middle East will move along a trajectory of escalation, which will provoke a large-scale armed conflict.
Vice Chancellor of Germany Robert Habeck in August, during a conversation with journalists in Bremen, said that the economic crisis is increasingly becoming entrenched at the level of stagnation, which frustrates everyone. He also noted that the situation may turn out to be more rigid and more persistent compared to the content of those scenarios that were formed within the framework of preliminary expectations. Moreover, Robert Habeck stated that the measures taken are still insufficient to overcome high interest rates, lack of demand from abroad, and structural problems that are observed in Germany.
Experts interviewed by the media say that the German economy will not show growth in the current year. Robin Winkler, an economist at Deutsche Bank, says that the survey conducted by ZEW reinforces the impression that the local economy is not really getting on its feet. The expert also noted that the assessment of the condition and the further prospects of the mentioned system deteriorated again after the improvement observed in the spring. Separately, Robin Winkler said that the complete disappearance of optimism within the framework of economic expectations after the spring is worrying.
The Bundesbank warned that the manufacturing sector continues to show weakness. The German financial regulator stated that the corresponding state of affairs in the mentioned segment of the country’s economic system is the result of a complex competitive environment in which industrial enterprises operate.
Clemens Fuest says that Berlin should take measures aimed at achieving goals such as increasing consumer confidence and improving similar investor sentiment. In this context, he also noted that for the mentioned result to become a reality, a policy shift is needed.
Besides, Clemens Fuest talks about the need for stronger investment incentives. According to him, the relevant actions and decisions primarily concern structural reforms, more expansionary fiscal policy, and loose monetary policy.
It is possible that from a short-term perspective, it is the change in the cost of borrowing that can become a kind of source of improvement for the German economic system. It is worth mentioning that in June the European Central Bank cut the record-high deposit rate by 25 basis points. After the relevant decision, the corresponding indicator was fixed at 3.75%. Also, currently, expectations are actively spreading among experts and in the markets that in September the European Central Bank will once again lower the cost of borrowing. The probability of making an appropriate decision by a financial institution is high.
Clemens Fuest suggests that perhaps greater caution could be the most appropriate approach for the eurozone. In this context, he noted that there is currently a strong increase in wages, and underlined that the corresponding tendency is also typical for Germany. According to him, German consumers seem to lack the confidence to start spending money more actively. It is worth noting that during periods of negative economic prospects in a particular country and uncertainty at the global level, what can be called consumer restraint is a logical reaction to what is happening.
LBBW bank’s Elmar Voelker says there are currently not too many reasons to be optimistic about the German economy. The expert mentioned external risks in this context. This is a fair comment, because, within the specifics of the historical period of globalization, the interdependence of systems and spaces in different parts of the world is at a high level. Currently, uncertainty is typical for the entire global economy. The corresponding state of affairs is facilitated by an increase in the level of tension in the space of geopolitical relations. The presidential elections in the United States, scheduled for November, are also a kind of turbulence factor in the context of global economic prospects.
Also, VP Bank chief economist Thomas Gitzel is one of those who sees no reason to be optimistic about the situation in Germany. The expert says that the local economic system continues to balance on the brink of minimal growth and recession.
In the context of the economic problems that Berlin has been facing over the past few years, it is also worth mentioning the shortage of qualified labor, bureaucracy, which continues to be a sensitive factor affecting business, and lagging investments in new projects. So far, there are no signs that the corresponding negative circumstances in 2025 will turn into the past and will not be included in the structure of the specifics of the present. Global economic uncertainty in general complicates any forecasts. At the same time, there is something unambiguous and, at least, relatively objective about the current state of affairs. The very fact of uncertainty indicates the impossibility of rapid economic growth, since a lack of understanding, including a preliminary one, of what will happen in the future, constrains the actions of investors and consumers.
