Morale among German business leaders slumped to its lowest point in seven years in August, according to a respected think tank which warned the country is approaching a recession.
The business climate index from think tank Ifo fell to 94.3 points from an upwardly revised 95.8 points in July. The confidence gauge was dragged down by the long-running malaise in manufacturing, where confidence fell to its lowest point since the financial crisis in 2009.
The weak reading will worry policymakers after the German economy, the biggest in Europe, shrunk in the second quarter by 0.1 per cent. Weak global demand caused exports from the former powerhouse of Europe to drop off in the months from April to June.
The export-driven German economy has struggled under the weight of trade tensions, weak demand from China, Brexit and a global slowdown.
Worryingly for Germany, even in the service sector the business climate deteriorated noticeably in August. In recent months services have been a bright spot amid low unemployment and relatively high consumer demand.
But this month “not a single ray of light was to be seen in any of Germany’s key industries,” said Clemens Fuest, president of the Ifo Institute. “There are ever more indications of a recession in Germany.”
Fuest said: “Companies were once again much less satisfied with their current business situation. Pessimism regarding the coming months also increased.”
Last week, Germany’s central bank warned that the country’s economy could already be in recession as its industrial sector continues to struggle.
The Bundesbank said in its monthly report on the health of the economy that “overall economic performance could again decline slightly”.
It said that growth in employment and wages, which have propped up the economy, were showing signs of weakening.