IFO index falls slightly: Concerns about gas and inflation cloud the mood in the industry

IFO index falls slightly
Gas worries and inflation cloud the mood in the industry

High energy prices and reduced gas supplies from Russia are currently worrying many German companies. The mood in the industry sinks. For economists, the IFO index points to economic headwinds and economic lethargy.

As expected, the business climate in Germany clouded over slightly in June. “Rising energy prices and the threat of gas shortages are causing great concern for the German economy,” commented IFO President Clemens Fuest. The IFO business climate index fell to 92.3 (May: 93.0) points. Economists had forecast a drop to 92.5 points. The situation assessment index fell to 99.3 (revised 99.6) points. 99.0 points had been expected, the provisional May value was 99.5. The business expectations index fell to 85.8 (86.9) points. The prognosis was 86.5 points.

On Thursday, the federal government declared the alarm level in the gas emergency plan. The reason is a sharp reduction in gas supplies by Russia. Economists warn of significant consequences should Russian gas supplies fail completely. They then assume an economic crisis.

Hospitality expects good summer

In manufacturing, the index suffered a significant setback. The companies rated the current situation somewhat worse. They are also noticeably more pessimistic about the second half of the year. “The chemical industry in particular is extremely concerned,” said the IFO Institute.

In the service sector, on the other hand, the business climate improved noticeably. This was due to significantly less skeptical expectations. The service providers also rated their current situation somewhat better.

According to the IFO survey, the hospitality industry is having a good summer. Transport and logistics, on the other hand, are pessimistic about the second half of the year. In trading, the indicator fell sharply. Retailers are significantly less satisfied with current business. Expectations fell to the lowest level since April 2020. Wholesalers and retailers are extremely concerned about the coming months. The business climate improved in the construction industry. The companies rated the situation better. Their expectations remained pessimistic, albeit slightly less than in the previous month.

For Christoph Swonke from DZ Bank, the “significant decline in expectations shows that the economic headwind is likely to increase in the coming months”. The declared second alarm level for the gas supply in Germany is not yet included in the survey. Alexander Kr├╝ger from Bankhaus Lampe speaks of signs of “persistent economic lethargy”. Andreas Scheuerle from Dekbank points out that “the record-high gap between the weak assessment of the situation and the recessionary business expectations” shows “that companies are preparing for a bad second half of the year”.

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