Trouble looms for Europe as Germany slides on brink of recession

German business morale fell more than expected in July, the Ifo business sentiment survey showed on Monday, as the institute that compiles it said high energy prices and looming gas shortages had left Europe’s largest economy on the cusp of recession.

The Ifo institute’s closely watched business climate index dropped to 88.6, its lowest in more than two years and below the 90.2 forecast in a Reuters poll of analysts. June’s reading was marginally revised down to 92.2.

“Recession is knocking on the door. That can no longer be ruled out,” said Ifo surveys head Klaus Wohlrabe.

Germany faces the threat of gas rationing unprecedented in generations this winter following a significant drop in supplies from Russia, whose president, Vladimir Putin, the West accuses of weaponising energy in response to sanctions levied against him over the war in Ukraine.

Russia this month shut down the Nord Stream 1 pipeline that supplies Germany with gas via the bed of the Baltic Sea for 10 days of maintenance that some feared would be extended.

Pumping resumed on Thursday, but at only 40% of capacity.

via Reuters