German economy on the brink of recession

After a short-term improvement in October this year, the forecast of the main managers of German companies worsened again in November. The business index fell in November compared to a month ago – from 86.5 points to 85.7. This was announced by the ifo Institute from Munich after a survey conducted with around 9,000 managers of German companies.

After four consecutive declines (from June to September), the ifo index increased in October. But now it has fallen again and company leaders are skeptical about the prospects of their businesses, that is, the business prospects in the coming months. "The German economy lacks strength", this is how the president of ifo, Clemens Fuest, summed up the results of the current survey.

The mood in the service sector deteriorated significantly, as well as in industrial companies. The reason is the drop in the number of orders.

Continuation of the crisis

A whole series of economic signals lead to the conclusion that there is still no clear way out of the crisis in Germany. The latest data on economic development (from last week) revealed that the German economy grew by just 0.1% in the summer quarter of 2024. But in the second and first quarters the economy contracted by 0.3% and 0.2 percent. Experts talk about a technical recession after two consecutive negative quarters.

Another important index of economic development has meanwhile fallen to the lowest level in the last nine months - the so-called "Purchasing Index".

Crisis in the construction industry as well

Concern also reigns in the construction sector, especially after the newly published data on works ordered in the following period. After an increase in the number of jobs in August, demand for construction services fell sharply again in September. Compared to a month ago, the volume of agreed agreements fell by 12.4%, the Federal Statistics Office announced. When considering the first three quarters of 2024, compared to the same period last year, construction in Germany registered a minus of 2 percent.

In its monthly report, the German central bank (Bundesbank) assumes that construction may be one of the sectors that will continue to hinder the development of the economy, ie the GDP.

Frankfurt, construction workers

 "The still high costs of financing, the pronounced economic and political uncertainty continue to have a negative impact on investments, and therefore on the demand for construction services".

It is expected that after the victory of Donald Trump in the presidential elections in the USA, the German economy will face even greater challenges. Trump announced during the election campaign that he plans to impose punitive tariffs on imports from Europe. Precisely Germany, as the European champion of exports, is the one that can suffer especially due to such a policy of economic isolation.

Pessimistic forecasts

This is also the reason why the pessimism of German economists is not surprising. It is no wonder that economists are wary of Donald Trump's victory, because he will insist on protecting the American economy and threatens punitive tariffs on imports. A serious threat is also the government crisis in Germany, because the current government has no support in the Bundestag. Early elections are expected in Germany soon./DW