Is Germany Slipping into Recession?

July 27, 2022
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Global Economy

The Ifo Business Climate Index is a well-known monthly indicator used to measure Germany’s economic development. It assesses entrepreneurs’ sentiments about the current business situation and their expectations for the next 6 months. 

In July 2022, this index fell to 88.6, down from 92.2 in June, marking its lowest level since June 2020. This is not good news for the German economy. But what has led to such low business confidence:

1. Germany Gas Crisis:

Germany depends on Russia for 40% of its natural-gas needs, from cooking in homes to firing power stations. But, in July, Russian state gas giant Gazprom drastically lowered its supply of natural gas to many nations in the EU including Germany. Due to this disruption in the European supply chain, Germany and eleven other EU countries have officially slid into a gas crisis. The decrease in the supply is adversely impacting the manufacturing industry due to a lack of fuel. We must keep in mind that the economy of Germany is the largest manufacturing economy in Europe. Several entrepreneurs and business owners believe that Germany is not fit for doing business as it once was.

Many members of the EU believe that Russia has weaponised energy in a bid to undermine their unity. But, Kremlin spokesperson Dmitry Peskov said that the reason behind the cut in gas supply was not a hidden political agenda but 'technical issues'. 

2. Rising Inflation:

Due to this disruption in global supply chain and Russia’s invasion of Ukraine, energy and food prices have risen to levels unseen since the 1970s. To battle this, many Central Banks around Europe have started hiking their interest rates. 

To conclude, it is visible that the economic downturn that Germany and many members of EU is a repercussion of the Russia-Ukraine war. The future of German economy depends on the future decisions taken by Vladimir Putin.

References

  1. https://www.vox.com/2022/7/20/23270078/europe-russia-gas-nord-stream-ukraine-war
  2. https://edition.cnn.com/2022/06/23/energy/germany-russia-gas-alarm/index.html
  3. https://www.ifo.de/en/survey/ifo-business-climate-index-germany
  4. https://blogs.lse.ac.uk/europpblog/2022/07/25/germany-is-likely-to-shift-toward-wage-restraint-as-inflation-concerns-mount/

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