German business sentiment sours amid gas-shortage fears

FRANKFURT – German business morale slumped in June amid worries that rising prices and gas shortages will drag on the economy in the second half of the year, a key survey showed Friday.

The Ifo business climate index, based on a survey of around 9,000 firms, fell to 92.3 points in June from 93.0 points in May amid growing pessimism about the rest of the year.

“Rising energy prices and looming gas shortages are causing great concern for the German economy,” said Ifo President Clemens Fuest, citing particular stress on the chemical industry, which relies heavily on natural gas supplies from Russia.

On Thursday, Berlin warned of a high risk to long-term supply shortages due to Russia chocking off gas deliveries. The country has raised its national energy alert over Russia’s “economic attack.”

The survey results add to the darkening picture for the German economy. On Thursday, the PMI survey for June showed that German economic sentiment “lost virtually all the momentum gained from the easing of virus related restrictions, with growth in the service sector cooling sharply for the second month in a row in June,” according to Phil Smith, economist at S&P Global, which compiles the survey.

“The German economy will definitely not plunge as it did during the 2020 lockdowns,” said ING economist Carsten Brzeski. “However, consumer confidence is already in clear recession territory and [these readings] both suggest that the manufacturing sector is quickly following suit.”

“Stagflation for the rest of the year remains our base case scenario for the German economy, and an outright recession is our risk scenario,” he added.

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