Germany's economic outlook is deteriorating rapidly, as evidenced by the Ifo Business Climate Index's decline for the third consecutive month in July 2024. Around 9,000 top business leaders surveyed have reported worsening current business conditions and an increasingly pessimistic future outlook.

Ifo President Clemens Fuest attributes this to a significant drop in corporate investment. The capital goods industry, in particular, reports a severe lack of new orders. Companies are still processing existing orders but are not receiving new ones. This trend indicates minimal investment activity, reflecting broader economic concerns. Consumer demand is also sluggish, despite rising disposable incomes and falling inflation rates, suggesting widespread public anxiety about the future. "The German economy is stuck in a crisis," Fuest stated.

These sentiments align with recent reports from Creditreform, which highlight a surge in corporate insolvencies. The first half of 2024 saw nearly 11,000 company bankruptcies, marking a nearly 30% increase compared to the previous year. The financial fallout has been severe, with creditors facing losses of €19 billion, up from €13 billion in the first half of 2023. Projected losses for 2024 could reach €40 billion, surpassing pre-crisis levels.

The impact on employment has been notable, with 133,000 jobs affected by company failures, a 6.4% increase. Although most bankruptcies occur in small to medium-sized businesses, the average number of employees per insolvent company remains around 12.

These catastrophic figures should set alarm bells ringing in Brussels and at the ECB Tower in Frankfurt. When making regional investment decisions about the eurozone, investors generally only look at how the German economy is doing. It stands for the creditworthiness of the eurozone, for the already weak and fiscally strained southern states. This self-dismantling of the German economy is likely to cause serious problems for the eurozone in the medium term.