Germany’s most prominent leading indicator just sent more recession signals. In September, the Ifo index dropped to 84.3, from 88.5 in August. This is the fourth consecutive drop. Both the current assessment component and expectations dropped significantly. Expectations are now at their lowest level since the financial crisis. The main reason for a further weakening in economic sentiment is clear: high inflation and its implications on corporate costs and consumer demand.
Recession remains inevitable
As in the rest of Europe, with the end of the summer, recessionary forces have come to the fore. While the services industry benefitted from a post-lockdown boost, industry saw some relief in global supply chains and backlogs being reduced. In recent months, however, order books have started to shrink, and high energy and commodity prices are weighing on demand and putting pressure on profit margins. Companies can no longer pass through higher costs to consumers as easily as in the first months of the year.