German recession could be less severe than expected, survey shows

German business confidence improved in November, a key survey said Thursday, as hopes grow that a looming recession in Europe's top economy will be less severe than feared.

An employee at a shop handles cash. Germany is facing tough times economically, according to experts.
An employee at a shop handles cash. Germany is facing tough times economically, according to experts. Photo: picture alliance/dpa | Fabian Sommer

The Ifo institute’s monthly confidence barometer, based on a survey of about 9,000 companies, reached 86.3 points, rising for a second month after a revised 84.5 points in October.

Before October, the reading had fallen for four months straight.

“Sentiment in the German economy has improved,” Ifo president Clemens Fuest said in a statement.

“Pessimism regarding the coming months reduced sharply. The recession could prove less severe than many had expected.” 

READ ALSO: Has Germany’s sky-high inflation finally peaked?

Germany is facing soaring inflation – consumer price rises hit 10.4 percent in October – driven by high energy costs after Russia slashed gas supplies following its invasion of Ukraine.

The government has forecast that Europe’s economic powerhouse will contract 0.4 percent in 2023, with inflation set to remain stubbornly high.

But hopes are growing that government relief measures – including a €200 billion package to shield companies and citizens from inflation – will soon bring prices down.

Germany’s gas storage facilities were completely filled up earlier this month, easing fears of winter shortages.

Carsten Brzeski of ING bank said the Ifo survey “adds to recent glimmers of hope that the German economy might avoid a winter recession.”

But he added the government stimulus “will come too late to prevent the economy from contracting in the fourth quarter.

“However, it is substantial enough to cushion the contraction and to turn a severe winter recession into a shallow one.”

Other surveys have started to show signs of improvement.

Earlier this month, a ZEW institute survey showed an increase in investor confidence for the second consecutive month.

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Will cannabis legalisation in Germany lead to a boom in sales?

It’s official: the Bundestag has officially decided to legalise the possession of cannabis in Germany. But it's unclear how big of an impact this will have on the sales and possession of the substance.

Will cannabis legalisation in Germany lead to a boom in sales?

Expectations for legalisation were huge: one of the largest markets for recreational use in the world could be emerging, cannabis companies raved.

Prohibition policies were to be replaced with specialist shops in German pedestrian zones, shady dealers were to be replaced by legal sales.

Legalisation seemed to be the next big thing and Germany as a large market was also promising from a foreign point of view. Providers from Switzerland, Canada and the USA have been warming up for a long time.

But with the decision of the German Bundestag on Friday, what has been looming for months is finally clear: The partial legalisation of cannabis for recreational use does not go nearly as far as envisaged in the coalition agreement of the traffic light government.

Under the new legislation, cannabis is to be removed from the Narcotics Act, where it has so far been listed as a prohibited substance alongside other drugs and subject to criminal provisions. Possession and home cultivation of limited quantities are to be allowed for adults from April 1st. And in so-called “cannabis clubs,” members will be allowed to grow marijuana plants together and distribute the flowers to each other.

READ ALSO: What the partial legalisation of cannabis could mean for Germany

However, the original plan to sell cannabis to adults in specialty stores has been postponed. This is to be tested in Germany in pilot projects.

Cannabis in Dresden

Martin Reuter, head of the Sanaleo shop for CBD products in Dresden’s Neustadt, holds a cannabis flower for sale in his hands. Photo: picture alliance/dpa | Robert Michael

The realities of a partial legalisation dampens euphoria

Some cannabis companies that were counting on setting up stores in the near-term are now in trouble, industry experts observed. The GoldRush-mood has long since given way to disillusionment in the competitive market.

One thing is clear: For the time being, there will not be a recreational market with cannabis shops like in the Netherlands and some US states in Germany.

“The fact that home cultivation is now allowed to a limited extent does not help the industry,” said Alessandro Rossoni, founder of the medical cannabis company Nimbus Health. The same applies to cannabis clubs. Some cannabis companies have run into trouble, others have disappeared or been bought out.

Nevertheless, the cannabis industry association sees an upwind for the companies. “Self-cultivation and cultivation clubs as opportunities for self-sufficiency are not commercial in themselves, but they do require infrastructure, equipment and services,” says Lisa Haag from the Department of Technology, Trade & Services.

In view of the hype surrounding the release, a colourful market has also emerged for all kinds of (legal) cannabis products – from hemp shower gels to hemp tea and creams.

Recently, a “hemp megastore” opened in Munich, offering around 1,000 cannabis-related products on 800 square metres.

READ ALSO: Bavaria to set up ‘control unit’ to curb cannabis use if legalised in Germany

Tailwind for medical cannabis on prescription

Cannabis as medicine has already experienced a boom since liberalisation in 2017. Patients can have the substance prescribed by a doctor, for example for spasticity in multiple sclerosis or chronic pain, as well as for nausea and vomiting after cancer chemotherapy.

According to market researcher Insight Health, around 77,000 cannabis patients in Germany received at least one prescription in 2023 – and that’s not including private, self-payers.

However, the documentation obligations for doctors have so far been high. In medicine, the legalisation of the industry will help, Rossoni of Nimbus Health expects. “Acceptance among doctors is likely to increase.”

New restrictions in place

Since the release of cannabis on prescription in 2017, there has been speculation about its release for recreational use. However, there are great doubts about the planned implementation.

Smoking pot in public spaces, for example, is to be prohibited in schools, sports facilities and within sight of them – specifically within 100 metres of the entrance area as the crow flies.

According to the plans, the cannabis clubs are to be organised as non-commercial associations and will require permits that are valid for a limited time. Additionally, the annex building must not be an apartment and must not have any conspicuous signs. Advertising is taboo, as is cannabis consumption directly on site. Documentation obligations are also regulated.

Rossoni is sceptical. “It remains to be seen whether all of this will prove to be practical.”