German business confidence has fallen more than expected this month, hitting a two-year low amid worries about higher energy prices and the prospect of a possible natural gas shortage, a closely watched survey showed Monday.
The Ifo institute said its monthly confidence index, a leading indicator for Europe’s biggest economy, dropped to 88.6 points in July from 92.2 last month. It was the second consecutive fall and took the index to its lowest level since June 2020. Economists had predicted a drop to 90.1.
The decline was led by a drop in companies’ outlook for the next six months, but they also were less satisfied with their current situation.
“Companies are expecting business to become much more difficult in the coming months,” Ifo said in a statement. “Higher energy prices and the threat of a gas shortage are weighing on the economy. Germany is on the cusp of a recession.”
Natural gas deliveries through the Nord Stream 1 pipeline from Russia to Germany resumed as scheduled last week after a 10-day shutdown for maintenance – but still at only 40% of full capacity, as they had been since mid-June. The outlook for future deliveries from Russia, which recently has accounted for around a third of Germany’s gas supply, is uncertain.
The German government announced that it would step up its gas storage requirements and take further measures to save gas used to power industry, generate electricity, and heat homes in the winter.
And on Friday, it announced a bailout package for energy supplier Uniper, in which it will take a 30% stake. One result will be higher prices for customers, whose effects officials vowed to cushion.
The Ifo survey is based on responses from about 9,000 businesses across various business sectors.