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(Bloomberg) — Germany’s business outlook held at its lowest level since February — highlighting the gloom once again engulfing Europe’s biggest economy after an early-year rebound fizzled out.
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The Ifo institute’s expectations gauge dipped to 86.8 in August from a revised 87 the previous month, beating the 85.8 seen by analysts in a Bloomberg poll. A barometer of current conditions also declined.
“The German economy is increasingly falling into crisis,” Ifo President Clemens Fuest said Monday in a statement. He noted that expectations worsened in both manufacturing and services.
Speaking later to Bloomberg Television, he said that the economy “has been stuck in stagnation for some time and this is getting worse — that’s what the data is telling us.”
Optimism that Germany would rebound in 2024 from two years of almost zero growth has faded as an anticipated jump in consumer spending failed to materialize and the country’s industrial sector continues to struggle.
Gross domestic product unexpectedly declined by 0.1% in the second quarter, while S&P’s Global Purchasing Managers’ Index remained below the 50 level that separates expansion from contraction for a second month in August.
The somber mood was reflected in this month’s investor confidence index by the ZEW institute, which slipped to its lowest level since January. The Bundesbank has warned of continued weakness in manufacturing as industrial enterprises are navigating a difficult” competitive environment.
“We need a boost of confidence of consumers and investors — and that requires a policy shift,” Fuest said. “We need stronger investment incentives. Most about structural reforms, more expansionary fiscal policy and loose monetary policy.”
Some assistance may be on the way on interest rates. After first lowering borrowing costs in June, the European Central Bank has signaled another move is likely in September.
German may need a cut more than the rest of the euro zone, since it’s the region’s laggard, according to Fuest.
“But the appropriate stance for the euro zone as a whole is maybe to be a little bit more cautious,” he said. “We are seeing strong wage increases. We are seeing them in Germany too. The trouble is, German consumers seem not to have the confidence to spend this money.”
–With assistance from Kristian Siedenburg, Joel Rinneby and Jana Randow.
(Updates with comments from Fuest to Bloomberg TV starting in fourth paragraph.)
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