The mood in the German economy clouded over in June.

The Ifo business climate index fell in June by 0.7 points to 92.3 points, as the Munich institute announced on Friday.

The mood barometer, which is based on a monthly survey of around 9,000 companies, had previously risen twice.

The business climate index is the most important early indicator for the development of the German economy.

Svea Junge

Editor in Business.

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"Rising energy prices and the impending gas shortage are causing great concern for the German economy," said Ifo President Clemens Fuest.

Companies' expectations for the next six months were significantly more pessimistic than in May.

But they were also somewhat less satisfied with their current business situation.

The mood has deteriorated, especially in industry and trade.

Companies are worried about the future.

Expectations in trade fell to their lowest level since April 2020. In the service sector, the business climate has improved noticeably.

"The hospitality industry is having a good summer," said Fuest.

Transport and logistics, on the other hand, were pessimistic about the second half of the year.

"The economic situation is unstable"

According to economists, the reason why the index did not fall more sharply in June is that most companies responded before Russia cut its supplies and the situation on the gas market worsened.

"In fact, the economic situation is unstable," warned Commerzbank chief economist Jörg Krämer.

LBBW economist Jens-Oliver Niklasch also said: "We continue to have very difficult conditions for the economy and assume that the trend in the coming months will be more downward."

Other mood indices are also signaling a slowdown in the German economy.

The purchasing managers' index published by S&P Global on Thursday also surprisingly fell by 2.4 points to 51.3 points and is now only just above the growth threshold of 50 points.

At the same time, it is the lowest value for half a year.

The data showed “that the German economy has lost virtually all of the momentum it gained from the easing of corona restrictions,” said S&P Global economist Phil Smith.

The mood barometer for the economy in the euro area also fell unexpectedly sharply by 2.9 to 51.9 points and thus to the lowest level in 16 months.

Growth is "gradually running out of steam," said S&P Global chief economist Chris Williamson.

The data signaled current growth of "a measly 0.2 percent," after plus 0.6 percent in the first quarter.

The companies were less optimistic about the future than they were last in October 2020.

Inflation weakens purchasing power

“The lifting of the corona restrictions had given the service sector a strong boost.

But demand is now suffering more and more from the loss of purchasing power due to the massive increase in energy prices," said Commerzbank economist Christoph Weil.

The same applies to industry.

LBBW economist Elmar Völker spoke of an "economic abyss" in view of the high inflation, ongoing supply chain problems and the risk of a gas supply stop from Russia.

"We haven't fallen yet, but it's not too many steps to the cliff," he said.

The leading economic research institutes had recently lowered their economic forecasts again.

They justified their correction primarily with the increasing burdens caused by rising inflation.

The RWI is still most optimistic about the German economy.

The Essen researchers still expect an increase in economic output of 2.7 percent this year.

The Munich Ifo Institute expects an increase of 2.5 percent and the Kiel Institute for the World Economy (IfW) with 2.1 percent.

The most pessimistic is the IWH.

The Halle economists are only forecasting an increase in gross domestic product (GDP) of 1.5 percent.

The economists are still somewhat more confident about the euro area, but they also see growing headwinds here.

The Ifo Institute is forecasting GDP growth of 3.3 percent for the currency area this year, while the IfW is only assuming growth of 2.8 percent.