Ifo business climate falls to two-year low – trade “extremely pessimistic”

Created: 08/25/2022, 11:37 am

By: Lisa Mayerhofer

The Ifo business climate falls to its lowest level in over two years.

The mood is particularly bad in trade and parts of the manufacturing sector.

Munich – The mood in the German economy has continued to deteriorate.

The business climate index determined by the Munich Ifo Institute fell from 88.7 points in July to 88.5 points in August, as the Ifo announced on Thursday.

This is the lowest level since June 2020. The decline in July 2022 was only slight - according to the Ifo, the mood is bad anyway.

"Economic output is likely to shrink in the third quarter," said Ifo President Clemens Fuest.

ifo Business Climate: Many retailers face a dilemma

According to the survey, companies were somewhat less satisfied with current business than in July.

According to the Ifo, the outlook for the coming months remained almost unchanged “clearly pessimistic”.

In the manufacturing sector, companies assessed the current situation somewhat worse, but their expectations were somewhat less pessimistic.

The chemical industry in particular - heavily dependent on gas - reported major problems, according to the Ifo.

In contrast, the mood in the service sector improved slightly.

However, expectations remained “unchangedly pessimistic”.

The hospitality industry in particular is expecting a noticeable deterioration in business.

According to the Ifo, the expectations in retail are even “extremely pessimistic”.

Many traders face a dilemma, explained the Ifo.

On the one hand, the high inflation rates weighed on their business.

On the other hand, they would hardly be able to avoid price increases due to increased costs.

Finally, in construction, the business climate improved.

Companies assessed their current situation somewhat better and pessimism regarding the coming months diminished somewhat.

ifo business climate as an important early indicator

Around 9,000 companies answer questions from the Ifo Institute every month for the business climate index.

They are asked to assess their current business situation and their expectations for the next six months.

The Ifo business climate is Germany's most important leading economic indicator.