Germany on the brink of recession, Ifo says, as business climate plummets

BERLIN (Reuters) – German business sentiment fell more than expected in July, the Ifo business climate survey showed on Monday, as the institute that compiles it said high energy prices and impending gas shortages had left Europe’s largest economy on the brink of recession.

The closely watched Ifo institute’s business climate index fell to 88.6, its lowest in more than two years and below the 90.2 forecast in a Reuters analyst poll. The June reading was revised down slightly to 92.2.

“The recession is knocking at the door. This can no longer be ruled out,” said Klaus Wohlrabe, Head of Ifo Investigations.

Germany faces the threat of gas rationing unprecedented for generations this winter following a major drop in supplies from Russia, whose President Vladimir Putin accuses the West of militarizing the energy in response to the sanctions imposed on him during the war in Ukraine.

Russia says it is carrying out a “special military operation” there to fight the nationalists.

Russia this month shut down the Nord Stream 1 gas pipeline that supplies Germany with gas through the Baltic Sea bed for 10 days of maintenance that some feared could be extended.

Pumping resumed on Thursday, but at only 40% capacity.

Wohlrabe told Reuters in an interview that if German gas supplies continue at this level “there will be no recession”.

However, Germany’s gas network regulator said on Friday that if gas flowing through the pipeline continued to be pumped at just 40%, the country would have to take “additional measures” to reach the 90% storage capacity target. to avoid winter. rationing.

The government said it would prioritize residents over the business sector in the event of rationing, and Monday’s Ifo index, which surveys around 9,000 businesses, showed business forecasts would deteriorate significantly In the coming months.

“The Ifo Business Climate Index, like the Purchasing Managers Index, now clearly indicates a slowdown in the German economy,” said Commerzbank economic analyst Jorge Kraemer.

“The gravity of the situation is unfortunately mainly in Putin’s hands.”

S&P Global’s flash Purchasing Managers (PM) index for German services and its index for manufacturing both fell to 49.2 in July, data showed on Friday, below analysts’ forecasts. to stay above the 50 mark that separates growth from contraction.

(Reporting by Rachel More and Miranda Murray; editing by John Stonestreet)

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