After a brief recovery in October of this year, the mood among Germany’s top business leaders worsened again in November. Specifically, the ifo Business Climate Index dropped from 86.5 points in October to 85.7 points in November, as reported by the ifo Institute in Munich. This index is based on a survey of approximately 9,000 key figures in the German economy.
Following four consecutive declines from June to September, the ifo index showed a slight increase in October. However, German companies are once again analyzing their business models with skepticism regarding the outlook for the coming months.
“The German Economy Lacks Strength”
The president of the ifo Institute, Clemens Fuest, summarized the results of the latest survey by saying, “The German economy lacks strength.”
A Crisis That Doesn’t Let Up
A series of economic indicators point to the conclusion that there is no way out of the crisis. Recent data on economic development revealed that the German national economy grew by just 0.1% in the summer quarter of 2024, narrowly avoiding a recession. In the second quarter, GDP fell by 0.3%, and in the first quarter of this year, GDP grew by only 0.2%. Experts refer to this as a technical recession, as there were two consecutive quarters of negative growth.
Another important index that tracks economic development, the Purchasing Managers’ Index (PMI), which mainly reflects sentiment in the manufacturing sector, has fallen to its lowest point in nine months.
Germany Needs More Investment
There are growing concerns in the construction sector, especially after the recent data on future construction orders. After a strong rise in employment numbers in August, demand for construction services fell sharply again in September. Compared to the previous month, the volume of agreed contracts dropped by 12.4%, according to the Federal Statistics Bureau. When comparing the first three quarters of 2024 with the same period last year, the German construction industry recorded a 2% decline.
In its most recent monthly report, the German central bank (Bundesbank) stated that construction could be one of the sectors that continues to hinder national economic growth and GDP expansion.
According to the report, “The still high financing costs and pronounced economic and political uncertainty continue to negatively affect investments, and consequently demand for construction services, i.e., capital goods.”
Challenges Ahead with Trump’s Return
After Donald Trump’s victory in the US presidential elections, Germany is expected to face even greater challenges. During his campaign, Trump stated that he plans to impose punitive tariffs on imports from Europe. Upon returning to the White House, Trump could push forward policies of economic protectionism for the US, and as Europe’s export champion, Germany may be particularly threatened by such isolationist economic policies.
Pessimistic Forecasts
This is why the pessimistic comments from German economists come as no surprise. It is not surprising that the ifo index, after a brief recovery in October, is again on the decline. With Trump’s arrival, there may be troubling winds for Germany’s export-oriented industry, which is already shaken.
Philip Scheuermeyer, an economist at KfW Bank, said, “In addition, there is a threat of a long pause until a new government is formed, during which German politics will hardly be able to react, let alone provide any new impulses.” At the same time, he believes that a small increase in growth could still be expected in 2025, provided there is an increase in private consumption and investments, thanks to the anticipated lowering of interest rates.
