ING Warns German Economy is “Stuck in Stagnation” Amid Ongoing Challenges

The German economy is facing significant stagnation, as a leading European bank warns that months of negative news are compounding deep-rooted structural issues. According to ING’s head of global macro research, Carsten Brzeski, the Ifo Business Climate Index—a key indicator of economic activity—has declined for the fifth consecutive month, falling to 85.4 in September from 86.6 in August. This signals a persistent downturn across sectors such as manufacturing, services, trade, and construction.

Brzeski highlighted that Germany has returned to its position as the eurozone’s growth laggard, with few signs of imminent recovery following a contraction in the second quarter. The contraction has been exacerbated by prolonged negative production PMI readings, which have been in contraction territory for over two years.

Germany is still grappling with the fallout from the cutoff of cheap Russian oil and gas due to the invasion of Ukraine, leading to increased costs for businesses. Furthermore, declining demand from China, a major trading partner, has worsened the recession in the production sector.

The automotive industry, once a beacon of strength for Germany, is now in crisis. A slower-than-expected shift to electric vehicles has left major players like Volkswagen and BMW struggling. Volkswagen has even scrapped a long-standing agreement to protect jobs and hinted at the possibility of closing a German factory for the first time in its history as it negotiates cost-cutting measures of €10 billion with unions.

Brzeski described the plight of the automotive sector as indicative of broader structural and cyclical issues, which are feeding into a negative sentiment cycle. Compounding these troubles, international companies like Intel are delaying expansion plans in Germany, with the tech giant pushing back its €30 billion factory project by up to two years.

Looking ahead, there appears to be little cause for optimism, as concerns about a potential U.S. economic slowdown and rising geopolitical tensions weigh heavily on German consumers and businesses. While Brzeski suggests that the Ifo indicator may improve slightly by year-end, he cautions that such improvements would come from very low levels, doing little to alter the narrative of a nation entrenched in stagnation.