Recession in Germany? Business confidence slumps to two-year low

The latest indication that Europe's largest economy is teetering on the verge of recession is the drop in German business confidence to its lowest level in more than two years. According to the carefully studied business confidence index from the Ifo Institute, businesses in Germany have grown more pessimistic about both their current situation and the prospects for the next six months. This month, the index dropped to 88.6, from 92.2 in June, which was the lowest reading since June 2020.

Germany has been severely impacted by rising prices and the Russian gas issue, which poses a wintertime production freeze danger to some of the nation's industrial powerhouses.Due to Germany's reliance on Russian gas, concerns have been raised over whether or not Germans will be able to afford to heat their houses this winter.

The government has declared that in addition to taking steps to enhance gas conservation, it will also need more gas storage. Additionally, it declared that it would support Uniper, an energy supplier, raising the possibility of price increases.

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According to experts surveyed by Reuters, German growth of only 0.1% is predicted to be shown in the second quarter's gross domestic product numbers. After contracting by 0.3% in the last three months of 2021, the GDP expanded by 0.2% in the first quarter of 2022.

The Ifo figures were worse than anticipated by Reuters' survey of experts, who predicted an average decline in the index of 90.5 points. According to Clemens Fuest, head of Ifo, "higher energy prices and the danger of a gas shortage are weighing on the economy," and the largest economy in the eurozone was "on the edge" of a recession, which is characterised by two consecutive quarters of negative growth.

(With inputs from agencies)

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