Germany’s Ifo business climate index declined to 85.4 in September 2024, down from 86.6 in August, marking its lowest level since January 2024. The drop in the index, which missed market expectations of 86, signals growing pessimism about the state of Europe’s largest economy.

Current Conditions and Business Expectations Weaken

The sub-index measuring current business conditions saw a significant drop, falling to 84.4 from 86.5 in August. This reflects the ongoing struggles faced by businesses in Germany as they contend with weakened demand, high input costs, and broader global economic uncertainties.

Business expectations for the next six months also worsened, with the sub-index falling from 86.8 to 86.3, indicating that companies remain cautious about the economic outlook. The downturn in expectations highlights concerns over persistent inflation, sluggish growth in key trading partners, and geopolitical risks.

Economic Outlook

The decline in the Ifo index paints a challenging picture for the German economy, as businesses across sectors face increasing headwinds. The manufacturing sector, in particular, has been hit hard by reduced global demand and high energy prices, while services are also feeling the effects of rising costs and tighter financial conditions.

With both current conditions and future expectations deteriorating, economists warn that Germany may face a prolonged period of economic weakness, further exacerbating the slowdown observed throughout 2024. Policymakers may come under increasing pressure to implement measures aimed at stabilizing the economy and restoring business confidence.