Economy: The German economy trembles at Putin’s power games

Business impending recession

German companies are afraid – “If it’s done badly, it’s mostly in Putin’s hands”

“It looks very dark in retail”

The mood on the German executive floors was clearly cloudy. This is reflected in the Ifo Index, which has fallen to its lowest level in two years. Germany is therefore on the brink of recession.

Record-breaking inflation and staff shortages are hitting companies. However, the particularly worrying shortage of gas causes shocks to the economy. Experts warn: the economy is in danger of collapsing this year.

DGermany faces an economic collapse. Fear of an impending gas shortage and rising energy prices weighs heavily on companies. The mood is also exacerbated by the lack of staff, unique in history problems with the supply of raw materials and input products, and record high inflation. The Ifo business climate, the world’s most important leading indicator, fell from 92.2 points in June to 88.6 points, the institute said on Monday. This is the lowest level since June 2020.

“Germany is on the brink of recession,” commented President Ifo Clemens Fuest. Especially that the business climate has deteriorated in all the considered sectors of the economy, and significantly: In industry, pessimism about the future is greater than since the beginning of the corona crisis, the head of Ifo emphasized: sectors. ”

After the great optimism, the mood among service providers changed again, incl. in the tourism and hotel industry. The tourism industry and restaurants started the summer with high expectations after easing the restrictions on the crown. Especially that during the pandemic, the Germans saved a lot of money, and in the spring they showed great consumerism.

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But the chaos in air traffic and the unreliability of Deutsche Bahn are once again having a negative impact on the travel industry. Record inflation also clearly weakens the willingness of the population to spend money. Which is also increasingly worrying the retail and hospitality sectors. As the Ifo index shows, expectations fell sharply across the services sector.

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Trade also signals growing concerns. No retail sector is more optimistic about the future, say Ifo economists. Rather, the lines of worry grew deeper in the coming months.

However, it is not only the prospects for the coming months that are increasingly gloomy on the managerial levels of local companies. According to the Ifo survey, the current situation has already worsened in many places. Hopes are fading that the German economy may return to pre-crown levels later this year after a deep slump in 2020.

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Because the Russian aggressive war, with its serious economic consequences, sharply interrupted the reconstruction process in the country. The former export world champion Germany even recorded a trade deficit for the first time in decades, meaning it imported more goods and services than it exported.

Instead of the expected recovery, the country is now facing stagnation or, at worst, a renewed contraction in economic output. The industry is already recording the first drop in orders in two years.

Many sectors, such as the chemical industry or large parts of the metal and electrical industry, are energy intensive and have therefore already been hard hit by price increases. Ongoing supply problems continue to have a big impact on the industry and most companies expect the situation to stabilize only next year. There is also a bad atmosphere at the construction site.

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The skill shortage jeopardizes the traffic light plans

Inflation is hitting Germany more and more and is pushing up prices for energy and building materials, while interest rates on buildings are rising at the same time, says Felix Pakleppa, CEO of the German Construction Industry Association. Construction orders in May fell by 7.5 percent. compared with the same month last year. From January to May, the real minus was 1.7%. “The prospects are bleak,” complains Pakleppa.

The plans of the traffic light coalition for the accelerated expansion of renewable energy, climate protection in construction and ambitious numbers for housing construction are major tasks for the construction industry. However, in view of the growing shortage of skilled workers, experts warn against too high expectations. Staff to assemble all wind turbines, solar roofs or heat pumps are not available.

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And new housing construction has so far been much lower than the target of the federal government. Lack of staff is also a huge problem in the hospitality industry and at airports. Flights are canceled and opening hours shortened as new employees cannot be found quickly. The lack of skilled workers is a brake on growth in more and more industries. And given the demographic development, the problem will be even greater in the longer term.

At the moment, however, the German economy is more concerned than anything by Putin’s power over gas. The huge Ifo downturn mainly reflects the fear of German companies about the gas crisis, says Jörg Krämer, chief economist at Commerzbank. Like the Purchasing Managers’ Index, the Ifo business climate clearly shows a downturn in the German economy, the economist fears: “Unfortunately, how bad it ultimately happens is mostly in Putin’s hands.”

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