German business outlook gloomy but inches higher

FILE PHOTO: The Berlin skyline, April 1, 2020. REUTERS/Michele Tantussi/File Photo

BERLIN: German business expectations edged higher though remained stuck at depressed levels amid a bleak outlook for Europe’s largest economy.

An expectations gauge by the ifo institute rose to 84.1 in February from 83.5 the previous month. Analysts had predicted a small advance to 84. An index of current conditions held steady.

A separate release earlier last Friday confirmed German output shrank by 0.3% in the fourth quarter, dragged down by a slump in investment that’s put the country on course for its first recession since the pandemic.

“It’s too early to say we are bottoming out,” ifo president Clemens Fuest told Bloomberg Television on Friday. “It’s a stabilisation at a low level.”

The data highlight Germany’s protracted weakness – a performance that’s becoming an increasing concern for politicians in Berlin. The government this week slashed its growth forecast for 2024 to just 0.2%, following a 0.3% contraction over the whole of 2023.

The export-reliant economy has been suffering from weak foreign demand, high interest rates, the loss of Russian energy supplies and geopolitical tensions. Disagreements within Chancellor Olaf Scholz’s three-party coalition and a court ruling disrupting its spending plans have heightened uncertainty.

Manufacturing, on which Germany relies more than many other countries for growth, has been in a long downturn. A survey last Thursday showed the retreat unexpectedly deepened in February as new orders plummeted both at home and abroad.

“We really see a further decline in manufacturing and production,” Fuest said. “Companies are telling us that orders are falling. It is the same in the production of investment goods. It is really domestic markets.”

Germany’s central bank reckons gross domestic product may drop again in the first quarter, which would tip the country into a recession. Bundesbank president Joachim Nagel said last Friday that stagnation may follow in the second quarter before a recovery begins.

That’s likely to feed the debate about Germany’s longer-term prospects, which are clouded by concerns over excessive bureaucracy, a quickly ageing workforce and a lack of investment in infrastructure and crucial technologies.

“We need to do more to tackle the reforms in order to maintain Germany’s competitiveness in a completely changed environment,” Economy Minister Robert Habeck said last Wednesday.

Rate cuts by the European Central Bank and some of its peers expected in the coming months may bring some relief. Pay increases for workers and slowing inflation are meanwhile seen stoking private consumption. — Bloomberg

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