Germany Recession Fears: Outlook Is Bleak, Ifo Warns

 The president now joins me to go over the most recent poll results. I value your time very much; your opinions are always much valued. Examining the poll, we see that the institutes' expectation gauge dropped from 86.3 in September. Especially in relation to the core rates, what are the main obstacles the European economy faces? Given the German economy in particular, I would mostly blame the manufacturing industry for its shortcomings. This deficit is visible in many other subsectors, including equipment, chemicals, electrical components, and the automobile sector. Businesses claim a shortage of orders, which is exacerbated by declining service sector performance particularly in sectors connected to industrial activity like engineering services and logistics. The general perspective is negative.

The story of a depressing picture keeps on. We discussed the differences between manufacturing and services, which are currently displaying indications of alignment. Are there more pressures to bear, especially in relation to service declines? Do you see a change towards a concentration on the industrial slowdown? The issue is in the declining manufacturing investment, which can cause production and value-added output to keep declining. Hinging on the future performance of the Chinese economy, the chronology for hitting the bottom under current external conditions remains unknown, including exports to China. In Germany, things are foggy. Many businesses cutting equipment investment in Germany point to a concerning trend in terms of lack of investment in Germany. Further aggravating the situation is this lack of security in investment combined with low building investment affecting manufacturing. At present, the possibility of stabilization in construction—which would support manufacturing—remains unknown.

Is a recession in Germany now a realistic possibility? We might perhaps post a negative growth figure this year. Much will depend on consumer spending. While discretionary incomes are rising, this increase has not yet shown appreciable expansion. The rising savings rate suggests an underlying future worry among consumers. Should this attitude change during the year, we could prevent a full-fledged recession. Still, the German economy is probably going to stall and negative growth rate looms large.
Does the European Central Bank (ecb) have to take a more forceful approach? Is a necessary projected ecb rate drop on October 3 to give the economy strong support? Although a fall in the October ecb rate would surprise some, the increasing probability shown by current data points to an ecb review is called for. The ECB sees things holistically, and Germany is a negative outlier. The process of decision-making by the ECB involves juggling a declining economy against quite steady inflation, particularly in the services sector. According to the most recent figures, German businesses are considering price cuts to help to lower inflationary pressure. All these elements point to a strong case for a rate reduction.
Could the next months show a good turn around? Key causes of Germany's economic difficulties have been the slowing down in China and its effects on exports. Should this slow down stabilize, it would offer some respite. Although it would not imply instant optimism for Germany, it would most definitely be a welcome change. German vulnerability, particularly in the automotive industry and the Chinese car market, draws attention to the structural flaws of German businesses, especially in the field of electric vehicles. Right now, the possibility of a stable building industry still remains unknown and would affect manufacturing in turn.