Germany’s business sentiment worsened more than expected in July, marking the second consecutive monthly decline, bolstering fears that the Eurozone’s largest economy is once again under pressure.

Sentiment among German companies worsened more than anticipated in July, marking the second consecutive monthly decline, the ifo Institute reported on Thursday.

The monthly survey, which includes around 9,000 German firms in manufacturing, services, trade, and construction, showed the Business Climate Index dropping from 88.6 points in June to 87 in July, missing economists’ forecasts of a rise to 88.9.

This overall decline in business confidence was driven by deteriorations in both current conditions and business expectations for the next six months. The expectations gauge fell to 86.9 in July, down from both the previous 89 and the predicted 89. The index for current conditions decreased from 88.3 to 87.1, below the anticipated 88.5.

The business climate in the manufacturing sector has significantly worsened, with current situation assessments becoming notably poorer, the ifo wrote.

In the services sector, the index declined again after recent improvements, primarily due to more pessimistic expectations.

Retail sector sentiment also worsened, with companies expressing less satisfaction with current business conditions. This was particularly true for retail, where doubts about future expectations grew.

“Skepticism regarding the coming months has increased considerably. The German economy is stuck in crisis,” Clemens Fuest, President of the ifo Institute, stated.

Germany’s economy struggles

On Wednesday, S&P Global revealed that German private sector activity contracted in July due to worsening manufacturing conditions and slower-than-expected expansions in services.

“This looks like a serious problem. Germany’s economy fell back into contraction territory, dragged down by a steep and dramatic fall in manufacturing output,” said Dr Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank.

Dr de la Rubia noted that the most significant factor impacting the German manufacturing sector is the increasing loss of global market share by German car and machinery producers to Chinese competitors, which is becoming a structural issue.

Deutsche Bank reported its first quarterly loss in four years. The largest German bank posted a net loss of €143 million or €0.28 per share, compared to a profit of €763 million in the same period the previous year.

This loss for Germany’s largest bank is primarily due to a €1.3 billion charge in the June quarter for ongoing litigation costs from its 2008 acquisition of Postbank. The bank also allocated €476 million for potential credit losses amid persistent stress in commercial real estate loans.

European Equities Tumble, Sovereign Yields Fall

The German DAX index fell 1.3% during Thursday morning trading in Europe, following a 1.1% decline on Wednesday.

Shares of Deutsche Bank AG extended losses, down 3.2% after tumbling 8.3% the previous day on disappointing quarterly results.

Heavier losses within the DAX index included Infineon, down over 5%, and Siemens Energy (ENR), down 3.5%.

The broader Euro STOXX 50 index fell 1.5%, with shares of Vivendi (1VIV), Kering (KER) and Schneider Electric (4SU) dropping the most, down 8.3%, 7.7%, and 4.8%, respectively.

The Italian FTSE Mib Index and the French CAC 40 fell 1.7% and 1.9%, respectively, with the latter hitting its lowest level since late January 2024.

Shares of STMicroelectronics NV plummeted over 11%, marking its worst session since December 2020, after issuing lower-than-expected revenue guidance for the current quarter.

The euro remained broadly steady against the dollar, with the exchange rate hovering around 1.0850. Notably, the euro fell nearly 1% against the Japanese yen, eyeing its fifth straight day of declines.

Yields on European sovereign bonds fell as investors raised expectations for European Central Bank rate cuts following bleak corporate earnings and weak economic data.

In Germany, yields on the 2-year Schatz tumbled 8 basis points to 2.65%, hitting their lowest level since early February 2024. Bund yields also fell by 5 basis points to 2.41%.

French OAT yields were 4 basis points lower at 3.12%, while the Italian BTP yield marginally eased to 3.79%.