Germany is teetering on the brink of recession as high energy prices and fears of gas shortages bite.
Europe’s largest economy saw business confidence fall by more than expected in July, according to data firm the Ifo Institute, to 88.6 points from 92.2 points a month earlier.
This was its lowest reading since June 2020, when the pandemic was in full swing. Ifo president Clemens Fuest said: ‘Higher energy prices and the threat of a gas shortage are weighing on the economy. Germany is on the cusp of a recession.’
Germany is teetering on the brink of recession as high energy prices and fears of gas shortages bite
In a further blow to the country, Russian state-backed energy firm Gazprom said it would reduce gas supplies to Europe even further. From tomorrow, the Nord Stream 1 pipeline, which runs along the Baltic Sea bed, will only be operating at 20pc of capacity. It was already only running at 40pc.
Even at that level, Germany’s gas network regulator said last week ‘additional measures’ would be needed to avert winter rationing and ensure it hits its target of 90pc of storage capacity.
Optimism in manufacturing plummeted, as new orders fell for the first time in two years.
The service sector was also struggling, and the mood soured even in tourism and hospitality, which had been more hopeful following the end of Covid travel restrictions.
The trade sector was also troubling, as not a single segment of retail was optimistic about the future. And construction ‘deteriorated notably’, according to Ifo, as business leaders’ take on their situation fell to its lowest level since April 2016.
Salomon Fiedler, an economist at investment bank Berenberg, said: ‘While the whole of Europe is likely headed for a recession later this year – if not already in it – the German economy may struggle more than most.’
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