German business confidence falls on Russia gas fear

Bloomberg

German business confidence unexpectedly deteriorated on mounting fears over energy supplies from Russia that are raising the prospect of a recession in Europe’s biggest economy.
A gauge of expectations by the Munich-based Ifo Institute fell to 85.8 in June from 86.9 in May, defying analyst predictions that two months of gains would continue. An index of current conditions edged lower.
The data feed the foreboding over Germany’s economic outlook, with the pandemic rebound already under pressure from rampant inflation and component shortages, and a survey of purchasing managers by S&P Global this week showing growth is now the slowest in the 19-member euro area.
The focus now, however, is on energy after the Kremlin cut supplies and the government in Berlin increased the natural-gas risk level to the second-highest “alarm” phase.
German Economy Minister Robert Habeck said on Friday that he can’t be sure Russia will resume shipments through a key pipeline following planned maintenance next month — increasing the chances of a fresh spike in prices and rationing this winter.
A day earlier, he warned that Russia’s moves risked collapsing energy markets and drew a parallel to the role of Lehman Brothers in triggering the
financial crisis.
Economists have warned of a contraction if gas shortages were to become a reality and manufacturers — on which the country relies to a greater extent than its neighbours to drive growth — would have to curtail production.
With energy issues likely to come to the fore in the winter, Fuest said there are “few dangers” of a recession this year. “But if Russia does reduce gas supplies further, what our forecasts say is that we will get a recession, but in 2023 — not before that.”
Even before another spike in energy costs, consumers and companies in Germany are being squeezed by record inflation that hit 8.7% last month. The European Central Bank has committed to increasing interest rates in July and September.