Germany’s business outlook unexpectedly improved for a sixth month as the economy gradually recovers from the energy shock.
(Bloomberg) — Germany’s business outlook unexpectedly improved for a sixth month as the economy gradually recovers from the energy shock.
An expectations gauge by the Ifo institute rose to 92.2 from a revised 91 the previous month. Economists polled by Bloomberg had forecast a small drop. An index of current conditions declined.
“We will continue to see this economy which is neither collapsing nor growing dynamically,” Ifo President Clemens Fuest told Bloomberg TV. “It’s a stagnating economy and the question is what could take the economy out of stagnation. Something that could achieve that would be further improvement in supply chains, and maybe a perspective for a settlement in the Ukraine war.”
Germany has teetered on the edge of a recession during the winter as companies and households faced surging heating and power bills following Russia’s attack on Ukraine. Natural gas costs have slumped this year, however, allowing Europe’s largest economy to dodge the worst-case scenario of shortages and blackouts.
That’s propped up economic activity, though it’s become unevenly distributed. Demand for services is rising, while a sustained drop is being witnessed in Germany’s outsized manufacturing sector, according to a survey published Friday by S&P Global.
There are some positive: Factories have been able to rely on a large backlog of orders and have benefited from an easing of supply bottlenecks.
Bundesbank President Joachim Nagel has said the economy may see slight growth for the full year. Inflation, meanwhile, is on the back foot — raising the prospect that the European Central Bank’s most aggressive run of interest-rate hikes will soon end.
But Fuest warned there’s a risk that the rapid increase in borrowing costs enacted so far will strongly dampen economic activity.
“It currently looks like we might manage a soft landing, but that is far from clear,” he said. “We see some sectors where we have a stronger impact, like construction, which is going very bad in Germany.”
–With assistance from Joel Rinneby, Kristian Siedenburg and Francine Lacqua.
(Updates with Fuest’s TV interview starting in third paragraph.)
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