German business outlook improves, feeding economic-rebound hopes
GERMANY’S business outlook improved slightly, supporting expectations for Europe’s largest economy to rebound modestly following a second recession in just over a year.
An expectations index by the Ifo institute rose to 84.7 in October, up from a revised 83.1 the previous month. That beat the median estimate in a Bloomberg survey for an increase to 83.5. A measure of current conditions unexpectedly advanced.
“Companies are somewhat more satisfied with their current business,” Ifo President Clemens Fuest said on Wednesday (Oct 25) in a statement. “In addition, managers were less pessimistic in their view of the coming months. Germany’s economy can see a silver lining ahead.”
Germany hasn’t recorded growth in more than a year and analysts see a contraction in the six months through December – weighed down by an energy crisis, weak Chinese demand and higher interest rates.
The key manufacturing sector continues to struggle. Chemical giant Lanxess announced last week that it will cut 7 per cent of its workforce in Germany due to energy shortages and cratering global demand – adding to previously announced redundancies at BASF. Citing cost issues and supply disruption, Volkswagen has cut guidance.
Business surveys released on Tuesday by S&P Global offered little solace, showing private-sector activity contracting at a steeper pace this month than in September. There were also signs of weakness in the labour market, which had been a bright spot.
More deep-seated challenges, like a rapid ageing of Germany’s workforce and the need to diversify trading relationships away from China, point to only feeble expansion in the coming years. Comparisons with the 1990s, when Germany was labelled the “sick man” of Europe, have also emerged.
Top officials – including Finance Minister Christian Lindner and Bundesbank president Joachim Nagel – have pushed back against such suggestions, saying German industry can overcome the challenges it’s facing. BLOOMBERG
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