On Tuesday, Bloomberg reported that for a third consecutive month, investor confidence in Germany has fallen as the nation’s growth prospects worsen, causing analysts to upgrade the likelihood the EU’s fourth largest economy will fall into a recession.

The ZEW economic research institute’s economic sentiment index fell to -10.7 in May, a decline from the 4.1 measurement registered in April. It represented the first negative reading of 2023. The outlet noted that an index of current conditions also deteriorated.

The reading confirms other data pointing to a deeper than predicted production slump, which has afflicted most industries in Germany. In March, new orders for manufacturing companies fell 10.7% month on month, the fastest decline since April of 2020.

In a statement ZEW President Achim Wambach said, “The financial market experts anticipate a worsening of the already unfavorable economic situation in the next six months. As a result, the German economy could slip into a recession, albeit a mild one.”

Most economists at this point are predicting that German industry will remain at current levels, reducing the likelihood of an economic resurgence.

In a note to clients, Carsten Brzeski, global head of macro at ING, said, “Today’s ZEW sends a worrisome message. Three consecutive drops are a new trend, a trend in the wrong direction.”

In its country report released Tuesday, the International Monetary Fund (IMF) warned that Berlin’s near-term growth prospects are being weighed down by tighter financial conditions and sky-high energy prices.

The IMF reported that the German GDP will, “stay near zero in 2023, before gradually strengthening to 1%-2% during 2024-26 as the lagged effects of monetary tightening gradually dissipate and the economy adjusts to the energy shock.”

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