OUR German economy perhaps a recession has begun, which, in our opinion, will last until the spring of next year. The main culprit is natural gas. The shortage of fuel after the Russian invasion of Ukraine and its unprecedented prices are putting a heavy burden on Germany, which is heavily dependent on it, but also has a vast industry. Consequently, the recession in Germany is likely to be deeper than in many other European countries. While benchmark European and German natural gas prices have declined significantly from their late August peaks, they remain well above their long-term averages. At least Germany and the EU. were able to increase imports from third-party non-Russian suppliers while saving enough gas to likely avoid immediate shortages this winter and next.
Otherwise, the erratic distribution of natural gas would create additional serious risk factors for our forecasts. The results of the October survey of the ifo economic institute are in line with our estimates. The economic sentiment index fell slightly to 84.3 in October from 84.4 in September. These levels are well below the long-term average of 96.8 since 2005. It is recalled that only during the global economic crisis of 2008-2009 and at the peak of the coronavirus pandemic in the spring of 2020 was the overall figure lower. With the ongoing recession, the current conditions index fell to 94.1 in October from 94.5 in September, while the expectations index rose to 75.6 in October.
In particular, business sentiment in the manufacturing sector weakened to -15.9 points in October from -14.3 points in September. According to ifo, this was due to more pessimistic business expectations, while views on current conditions have even improved slightly. Order books remain full, but companies are getting fewer and fewer new orders. Sentiment in the services sector recovered to -8.6 points in October from -8.9 points in September, and in the trade sector they rose to -31.9 points in October from -32.3 points in September. Perceptions of current conditions have improved slightly. However, expectations for the barrier remained extremely bleak overall, especially for the retail subsector.
* Mr. Salomon Fiedler is an economist at Berenberg Bank.
Source: Kathimerini
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