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Falling Confidence

DW staff (th)November 24, 2008

For Germany, the bad economic news keeps coming. Every second German business plans layoffs in the upcoming year, according to a new report. And business confidence has dropped yet again.

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Man works on an Opel car
Some carmakers have already announced layoffsImage: AP

German business owners have found no silver lining in the bad economic news which continues to dominate headlines around the globe.

German business confidence dropped again in November, the six month it has done so, the Munich-based Ifo economic research institute reported on Monday, Nov. 24. The index fell to 85.8 points from 90.2 points the previous month, its lowest level in 16 years.

Germany, the euro zone's largest economy, officially entered a recession in the third quarter of this year. Automakers, chemical manufacturers and steelmakers have already announced sharp drops in production and staff cutbacks. But an additional 230,000 people are expected to be laid off during what economist predict will be a tough 2009.

"On the whole, the economic downturn has worsened and will now have an impact on the labor market," Ifo president Hans-Werner Sinn said. "Export business is expected to weaken at an accelerated pace and plans call for reductions in staff."

Bad news "spreading like wildfire"

Germany's Bild newspaper reported that a full 52 percent of businesses in eastern Germany and 45 percent of businesses in western Germany expect to lay off workers in 2009. The newspaper cited data from the German Economic Institute (IW) in Cologne to be released on Monday.

Three women with shopping bags
Retailers are worried that people will stop shoppingImage: picture-alliance / Chad Ehlers

"It seems as if a wildfire is running through the German economy at an enormous speed," said ING Bank economist Carsten Brzeski told DPA news agency. "Further drops in new orders, bad news from the German automobile industry and a general climate of high uncertainty all bode ill for the months ahead."

Germany's influential central bank, the Bundesbank, is expected to warn in a report to be released next week that the nation faces its worst recession since 1949 with economic growth shrinking by one percent in 2009.

German Chancellor Angela Merkel had warned Sunday that the country must brace itself for "a year of bad news, at least in the first months."

"We have stabilized the financial markets thanks to a series of measures for the banks, but confidence still has to be found again and the inter-banking market must become functional again," Merkel told the Welt am Sonntag newspaper.

No end in sight

Companies "have yet to see any light at the end of the tunnel," economist Jennifer McKeown of Capital Economics told AFP news agency.

Frankfurt stock index
German companies have had a rocky yearImage: AP

McKeown commented that "the only hope is that the index is now overstating the downturn in activity in the same way that it overstated the latest upturn."

And things look bad across the euro zone. The purchasing manager's index, which is compiled by the research group Markit, recorded the biggest drop on record, bringing the index to its lowest level in the survey's 10-year history.