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Germany is facing a recession: Ifo economist

BERLIN: Germany is facing a recession, an economist at Germany’s Ifo economic institute said on Monday, as the institute’s business climate index fell to its lowest level since August 2012.

“There will be a stagnation in the third quarter at best,” Klaus Wohlrabe said, adding that this would also apply for final gross domestic product (GDP) figures for the second quarter, which Germany’s statistics office is due to release on Tuesday.

“We are facing a recession,” he told Reuters.

Wohlrabe added that although the business climate improved in Germany’s struggling auto industry, it significantly deteriorated in the engineering, chemicals and electrics sectors.

German business sentiment deteriorated more than expected in August to hit its lowest since November 2012, an Ifo survey showed.

Germany’s export-reliant manufacturers are struggling with weaker foreign demand, tariff disputes sparked by U.S. President Donald Trump’s ‘America First’ policies and business uncertainty linked to Britain’s decision to leave the European Union.

The Munich-based Ifo institute said its business climate index fell to 94.3 from an upwardly revised 95.8 in July. The August reading, the fifth monthly decline in a row, undershot a consensus forecast for 95.1.

“There are ever more indications of a recession in Germany,” Ifo President Clemens Fuest said in a statement. Companies were much less satisfied with their current situation and their pessimism about the coming months also increased, he added.

“The last time that industrial companies demonstrated such pessimism was in the crisis year of 2009. Not a single ray of light was to be seen in any of Germany’s key industries.”

The Ifo survey followed Markit’s survey of purchasing managers (PMI) released on Thursday that showed Germany’s private sector continued to struggle in August as a manufacturing recession dragged on and activity in the services sector eased slightly.

The German economy contracted 0.1% in the April-June period due to a plunge in exports. The Bundesbank said last Monday the German economy could have continued to shrink over the summer as industrial production falls amid a lack of orders.

“German companies have to buckle up in the coming quarters. As bitter as it sounds, the export dependence of the German economy is currently becoming a boomerang,” VP Bank analyst Thomas Gitzel.

The unexpectedly weak Ifo figures are likely to lead to even more calls for the federal government to inject more fiscal stimulus into the economy by increasing public investment in the infrastructure.

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