German economy shrinks faster in September

Shopping street in Stuttgart

Private consumers are more and more reluctant to spend, which the economy is now feeling.

(Photo: IMAGO/Arnulf Hettrich)

Berlin In September, the German economy shrank more sharply than it had since the beginning of the corona pandemic almost two and a half years ago due to high inflation and rising interest rates. The purchasing managers' index for the private sector – industry and the service sector together – fell by 1.0 to 45.9 points.

This is the lowest level since May 2020, the financial services provider said S&P Global on Friday for its monthly survey of around 800 companies. The barometer, which is widely observed on the financial markets, is thus well below the 50 mark, from which point it signals growth.

"In view of the accelerated downswing and the further deterioration in leading indicators, the German economy is likely to shrink in the third quarter of 2022," commented S&P economist Phil Smith on the development. "And the outlook for the fourth quarter is also not very positive." The situation is deteriorating, especially among service providers, "since the willingness of customers to spend has fallen significantly due to tightening budgets and increasingly uncertain prospects".

On the other hand, production in industry did not fall quite as sharply due to easing material shortages. However, both economic sectors were equally concerned about developments in the coming months, since the energy crisis is fueling more and more fears of a recession.

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Leading institutes have recently lowered their economic forecasts for the German economy. The Institute for the World Economy (IfW) expects 2023 to be an extremely difficult year due to massively rising energy prices as a result of the Russian invasion of Ukraine. The Kiel researchers predict in their autumn forecast that gross domestic product will then shrink by 0.7 percent.

In June they had still expected a strong increase of 3.3 percent. For the current year, the IfW is still expecting growth, but at 1.4 percent it should be lower than the 2.1 percent assumed in the summer.

More: The energy crisis is threatening the German economy

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