Latest data from Germany's Ifo Institute revealed that German business sentiment has dropped for the third consecutive month in July, fueling speculation that the situation is unlikely to improve in the short-run.

Based on a survey of 9,000 companies, the confidence level fell from 88.6 points in June to 87.3 points in July. 

Experts from FactSet initially forecasted that the reading would fall to 88.0 points.  

But the results from the survey suggest that things are unlikely to improve for Germany as the country has recently fallen into a technical recession in the first quarter of 2023. 

"Sentiment among German companies has worsened further," Ifo president Clemens Fuest told AFP, noting that the dissatisfaction of German businesses with their current performance was a relevant factor on general sentiment. "The situation in the German economy is turning bleaker."  

Observers say that the contraction is likely to remain for the rest of the year. 

"The German economy is in a no-man's-land between a weak recession and an anemic recovery," public lender KfW's chief economist Fritzi Koehler-Geib told AFP.  "Industry, in particular, has been disappointing, as production continues to tread water despite dwindling supply chain problems."

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With inflation hitting 6.4% in June 2023 and a series of interest hikes initiated by the European Central Bank (ECB), household consumption continues to suffer the plight of economic downturn.

Prior to the start of the Ukrainian conflict, Russian oil had enabled the German economy to boom, fostering job creation, and growth in various sectors, and contributing to trade surpluses that further stimulated the business cycles.

When sanctions on Russia were enforced and Nord Stream was blown up, Germany's manufacturing PMI, which measures the performance of the manufacturing sector, fell to its lowest levels recorded since 2020, with an index of 40.6 in June 2023 dropping from 44.5 in April.

Moreover, weak demand from China and the US has shrunk exports, further fueling the contraction of Germany's economy. 

LBBW bank analyst Jens-Oliver Niklasch said that the survey's results suggest "we're in a recession and won't be getting out of it very quickly". 

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