With the decline in business confidence, the risk of German recession is imminent
Economists warned that Germany may fall into recession this winter after the main indicator of German business confidence fell to its lowest point since February and the central bank sharply lowered its economic growth forecast.
Due to supply chain bottlenecks leading to material delays and shortages, Germany’s huge manufacturing industry has been stagnant for months. But now, its larger service industry is also being dragged down by new restrictions to curb the surge in coronavirus infections.
The Bundesbank lowered its growth forecast for this year and next, and warned that output may fall by the end of this year, which underscores the deteriorating outlook for Europe’s largest economy.
The monthly index of German business climate produced by the Munich Ifo Institute fell more than most economists expected in December to 94.7, which was lower than the previous month’s 96.6.
Ifo President Clemens Fuest said: “The company is not very optimistic about their current business conditions.” “The pessimism for the first half of 2022 has also increased. This year, the German economy has not received any gifts.”
Fuest said sentiment in the service, retail, and construction industries has declined-including travel and hotel companies that have seen a sharp decline in confidence. The confidence of German manufacturers has risen, but more manufacturers have also warned that the supply deadlock will intensify.
Carsten Brzeski, head of macro research at ING, said: “The fourth wave of pandemics may now actually push the economy to the brink of stagnation, or even into a technical recession.”
However, some economists said that the recent rebound in German industrial production, driven by a surge in auto production in October, may save the economy from a decline in overall output in the last quarter.
Goldman Sachs Chief European Economist Sven Jari Stehn said: “Considering the momentum you have, it is unlikely that growth in the fourth quarter will be negative.”
However, he added that Goldman Sachs’ forecast of 0.4% economic growth in Germany in the first quarter of next year poses “downside risks”—especially if stricter national lockdown measures are taken to combat the Omicron coronavirus variant and last longer than expected.
The Bundesbank on Friday lowered Germany’s economic growth forecast for this year from 3.7% to 2.5%, and lowered its economic growth forecast for next year from 5.2% to 4.2%. It warned that the gross domestic product in the last quarter of this year “may decline”, but due to the “private consumption boom” and increased exports and business investment, it will rebound next spring.
The outgoing governor of the Bundesbank, Jens Weidmann, said that inflation risks are “upward” and urged policymakers to “remain vigilant”. The Central Bank raised its forecast for German inflation, which is expected to increase from 3.2% this year to 3.6% next year, and then slow to 2.2% in 2023.
There is more evidence that supply barriers have pushed up inflationary pressures, after German producer prices in November rose 19.2% from the same period last year-this is the fastest increase since 1951-mainly due to soaring prices of energy, metals and wood products Push.
The Bundesbank predicts that supply chain bottlenecks will not be resolved until the end of next year.
Deutsche Bank and Commerzbank-Germany’s two largest private-sector lenders-also warned that there could be a recession this winter.
Deutsche Bank predicts that the German economy will shrink by 0.5% in this quarter and the next quarter, “mainly due to the tightening of Covid regulations and voluntary social distancing which has led to the suppression of private consumption.”
Jörg Krämer, chief economist at Commerzbank, also predicts that consumer spending in Germany will fall in the short term. But he said that during the pandemic, households had accumulated additional savings equivalent to 10% of their disposable income, and predicted that once the restrictions were lifted, “this would greatly boost consumption,” even if only part of it was spent.