Germany’s business outlook unexpectedly sours
GERMAN business expectations worsened for a second month, wrong-footing analysts and adding to an already tough start to 2024 for Europe’s largest economy.
An expectations gauge by the Ifo institute fell to 83.5 in January from a revised 84.2 the previous month. Analysts had expected a slight uptick. An index of current conditions also dropped.
“Companies assessed their current situation as worse – their expectations for the months ahead were also once again more pessimistic,” Ifo president Clemens Fuest said in a statement. “The German economy is stuck in recession.”
While narrowly escaping two straight quarters of contraction last year, Germany continues to suffer from weak global demand and the aftermath of the energy crisis.
It is banking on a rebound in consumer spending to revive its fortunes, but that has not materialised yet and private-sector activity data on Wednesday pained a bleak picture.
The Bundesbank does expect a return to growth in 2024 – though only by 0.4 per cent.
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Wage deals negotiated in the coming months may help determine how strongly private spending will rebound.
IG Metall, Germany’s largest union, said on Thursday (Jan 25) that it would enter a bargaining round for the metal and electrical industries in the second half “constructively and ready for conflict”.
A six-day strike by train drivers is paralysing the country at present.
They have rejected an offer by Deutsche Bahn for salary increases of as much as 13 per cent and the option to reduce working hours to 37 a week from 2026.
There is some optimism over Germany’s outlook, with investors predicting tailwinds in the form of interest-rate cuts from the European Central Bank as soon as April.
While officials in Frankfurt have pushed back against that timetable, they are still likely to loosen policy this year and are converging around June as a potential starting point.
The ECB will announce its latest decision on borrowing costs later on Thursday, with the deposit rate set to stay at 4 per cent for a third straight meeting. BLOOMBERG
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