Ifo Warns on German Business Confidence

The Ifo Institute warned that the outlook of businesses in Germany has fallen, as have their views of the future. Research from other sources has shown the slowdown of German economy, which has quickly raised worry that the largest nation in Europe by gross domestic product cannot dodge a recession.

The agency reported that for July:

The Ifo Business Climate Index for industry and trade in Germany fell in July. After improving last month, assessments of the current business situation were more cautious again this month. Expectations in terms of the business outlook were also more pessimistic. The euro crisis is having an increasingly negative impact on the German economy.

Specifically, the business climate index dropped to 103.3, its lowest level in more than a year. The business situation index fell to 111.6, also a low for the period. For July 2011, the business situation figure was 121.5, a measure of just how far this evaluation has dropped. Business expectations dropped to 95.6, below the important 100 level. Just two months ago, the figure was 100.8.

If the primary drivers of the global economy are Germany, the United States, Japan and China, a chain reaction has begun that likely will affect worldwide growth for at least the next year. The import and export dynamics among the four nations are such that trouble in one is bound to effect the others. And, now all four are struggling.

Germany’s trouble will have another profound effect. At the financial core of any bailout of Spain or Italy are the financial contributions of Germany. Most voters in the country oppose large aid packages for these nations despite approval by parliament and Germany’s high court. Chancellor Angela Merkel and her coalition face being thrown out of office if the dual issues of a sluggish economy and tens of billions of dollars in aid to other countries are combined.

Germany’s slowdown has already rippled to other parts of the world.

Douglas A. McIntyre