The Ifo Business Climate Index revealed last week that German business confidence declined more than predicted in July over mounting worries that high inflation and constrained energy supply from Russia could send Europe’s biggest economy into a recession.
The Business Climate Index shows confidence at the weakest level since the early months of the COVID-19 pandemic.
The carefully monitored Business Climate Index fell to 88.6, its lowest level in more than two years, and below the 90.2 prediction published by Reuters.
“Germany is on the brink of a recession,” Ifo President Clemens Fuest stated. “High energy prices and the threat of gas shortages are weighing on the economy. Companies are expecting significantly worse business activity in the coming months.”
Klaus Wohlrabe, head of Ifo surveys, said, “Recession is knocking on the door. That can no longer be ruled out.”
Germany has suffered a significant decline in natural gas imports from Russia as the West accuses Russian President Vladimir Putin of weaponizing energy in reaction to sanctions placed on Russia for its war in Ukraine. Putin has thus far lowered the flow of energy to Europe on multiple occasions.
Earlier this month, Russia shut down the Nord Stream 1 pipeline, which travels beneath the Baltic Sea and delivers natural gas to Germany, for ten days of maintenance. When it started pumping, the gas flowed at approximately 40% of its previous rate.
The Dallas Express has reported that Germany faces the possibility of gas rationing this winter, which has been unheard of for generations.
According to Germany’s gas network authority, the country would need to take “additional measures” to attain the 90% storage capacity established as a target to avoid winter rationing if gas via the pipeline continued to be pushed at only 40% of its previous rate.
Jorge Kraemer, an economist at Commerzbank, stated, “The Ifo business climate index, like the purchasing managers’ index, now clearly points to a downturn in the German economy. How bad it ends up, unfortunately, lies mainly in Putin’s hands,” per Reuters.