German Business Index at Five-Month Low

German business confidence fell to a five-month low in September amid a “bottleneck recession” for industry just before voters redraw the political makeup of Europe’s biggest economy in the era after Chancellor Angela Merkel.

A gauge compiled by the Munich-based Ifo Institute slipped to 98.8 from 99.6 in August, deeper than economists’ expectations in a Bloomberg survey. An index measuring expectations for the next six months also fell, as did one assessing current conditions.

The outcome hints at the challenges facing German businesses even after a growth upswing over the summer months, as stubborn shortages of parts and raw materials bedevil the sizable manufacturing sector while persistent coronavirus infections carry the threat of further disruption.

The picture of weakening sentiment is all the more poignant as a backdrop to the federal election this weekend, which will usher in new leadership for an economy central to the region’s prosperity for the first time since Merkel took office 16 years ago.

“Problems in the procurement of raw materials and intermediate products are putting the brakes on the German economy,” Ifo President Clemens Fuest said in a statement. “Manufacturing is experiencing a bottleneck recession.”

The combined forces of emerging coronavirus variants, supply squeezes and a lack of shipping capacity are creating price spikes in economies across the globe and curbing the rebound in activity. While those issues initially hit manufacturers harder, a separate report on Thursday showed that German service-sector momentum also slowed in September.

While the country’s politicians are trying to avoid another lockdown, the Bundesbank warned in August that growth this year may turn out somewhat lower than the 3.7% forecast in June.

Opinion polls show the Social Democrats, proposing Finance Minister Olaf Scholz as the next chancellor, are currently in the lead. Merkel’s CDU-led conservative bloc is in second place. The election is likely augur a protracted round of coalition negotiations before the formation of the next government.