The war in Ukraine is collapsing the morale of German companies

BERLIN (Reuters) – German business morale plummeted in March as companies worried about rising energy prices, driver shortages and the stability of supply chains in the wake of the war in Ukraine, suggesting a possible future recession, according to a survey published on Friday.

The Ifo institute said its business climate index fell to 90.8 in March, from a downwardly revised 98.5 in February. A Reuters poll of analysts had indicated a March reading of 94.2.

“The message from Germany’s most important economic barometer is clear: the German economy is very likely to slide into recession,” said Thomas Gitzel, chief economist at VP Bank Group.

The release of the Purchasing Managers’ Index on Thursday raised hopes that the German economy had so far been able to absorb the economic consequences of the war, but Friday’s Ifo index ‘teaches us otherwise’ “, said Gitzel.

“The extreme divergence between the situation and expectations is typical. Even if not much has really happened, the uncertainty due to the war is very high,” said Jens-Oliver Niklasch, senior economist at the Landesbank Baden-Wuerttemberg.

Ultimately, the uncertainty goes far beyond the war in Ukraine, raising questions about the sustainability of Germany’s economic model, Decabank’s Andreas Scheuerle said, pointing to Europe’s largest economy’s one-sided dependence on Europe’s biggest economy. -to supplier and customer countries.

According to Commerzbank’s Joerg Kraemer, companies are particularly concerned about risks such as a Western boycott of Russian oil, which would leave the market significantly undersupplied and push prices higher.

The business expectations index also fell to 85.1 from 98.4, the biggest fall since the outbreak of the coronavirus pandemic.

At present, two-thirds of industrial companies want to raise prices more than ever and retailers are also looking to follow suit, Ifo economics expert Klaus Wohlrabe told Reuters.

“It’s a domino effect,” he said.

The service sector may initially welcome the easing of COVID-19 restrictions, but trouble looms as car fueling has become a burden and families will have to cut back on leisure activities , Gitzel said.

Meanwhile, the relief package announced by the German government on Thursday is nowhere near enough to offset rising costs, Gitzel said.

(Reporting by Zuzanna Szymanska, Rene Wagner and Klaus Lauer, editing by Thomas Escritt and Toby Chopra)

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