German business confidence fell more than expected in June, the first drop since last December. The service sector improved, but the commercial sector worsened. Euro 2024 is expected to bring additional revenue, but will not significantly affect the economy.
The trust of German companies decreased more than expected in Junewhich represents the first month-on-month drop since December 2023, as reported by the ifo Institute.
The monthly survey carried out on about 9,000 german companies of the manufacturing, services, commerce and construction sectors revealed that the Business Climate Index Ifo fell from 89.3 points in May to 88.6 in June, missing economists’ expectations of an increase to 89.7 points.
He general decline in confidence was mainly due to worsening business expectations for the next six months. The expectations indicator fell from 90.4 points in May to 89 in June, below the 91 expected. The current conditions index was stable at 88.3, slightly below the expected 88.5.
In it Manufacturing sectorthe business climate fell after three consecutive months of improvement, with companies more cautious about the future.
In it service sector, the index increased. Service providers evaluated their situation more positively, and the outlook for the second half of the year as well they kept improving.
In it tradethe business climate worsened significantly due to the growing skepticism about the future. On the contrary, the sector of construction saw a slight increase in its index, driven by less pessimistic expectations, although the lack of orders remains a major problem.
“The German economy is struggling to overcome stagnation,” wrote the ifo.
Germany’s economic outlook improves slightly
Last week, the ifo Institute slightly increased its economic growth forecast for Germany in the second half of 2024.
For the full year 2024, the German economic research institute forecasts growth of 0.4%, which is an improvement over the 0.2% contraction in 2023. This represents an increase of 0.2 percentage points compared to the spring 2024 ifo forecast.
Meanwhile, the German economy is forecast to grow by 1.5% in 2025, in line with previous estimates. Inflation will average 2.2% in 2024 and will decline to 1.7% in 2025.
According to the Munich-based research institution, the manufacturing industry, with its export businessis propping up the economy, while construction will likely continue its downward trend and will suffer a strong setback.
“New hopes are now emerging. The German economy is gradually emerging from the crisis“says ifo’s head of forecasts, Professor Timo Wollmershäuser.
The Euro 2024 will not change the rules of the game
“The football euro cup that will be held in Germany will not be a summer fairy tale for the German economy,” states the ifo in a study published at the beginning of the month.
According to forecasts, Euro 2024 will report to Germany income from foreign football tourists. According to the latest economic forecasts from the IFO, this influx corresponds to approximately 0.1% of economic production in the second quarter of the year.
However, the ifo institute estimated that, from a macroeconomic perspective, these types of major events usually has limited impactexcept in the turismo.
“Although national consumers They will also briefly spend more in the hospitality and food retail sectors during the Championship, they will reduce their spending in other sectors, so private consumption as a whole will probably not be affected. That is at least what the experience of the 2006 World Cup“said Professor Wollmershäuser.
Ifo researcher Gerome Wolf pointed out. “However, the effect will be ephemeralmeaning that service exports due to tourists returning home after the end of Euro 2024 are likely to fall again in the third quarter and, overall, remain the same.”
Market reactions
German assets showed a Minimal reaction to business climate release of the ifo. Bund yields were steady at 2.40% during Monday’s relatively tight session.
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