Germany’s business outlook improved slightly in September, while remaining at historically low levels as the economy faces another contraction this quarter.
(Bloomberg) — Germany’s business outlook improved slightly in September, while remaining at historically low levels as the economy faces another contraction this quarter.
An expectations gauge by the Ifo institute ticked up to 82.9 from 82.7 in August — a touch worse than economists had estimated in a Bloomberg poll. An index of current conditions also slipped.
“It’s not falling apart but it’s not stabilizing,” Ifo President Clemens Fuest told Bloomberg TV. “The Germany economy has difficulty leaving this downturn or stagnation. What we see in the data is a mixed bag.”
After suffering a recession in the six months through March and stagnating in the second quarter, Germany’s economy is probably shrinking again as weak global demand, inflation and higher interest rates weigh on companies and households. That makes it the only large euro-zone country whose output is forecast to drop this year.
The European Central Bank mustn’t test the region’s economy to breaking point Governing Council member Francois Villeroy de Galhau warned earlier Monday.
The scale of Germany’s problems has also intensified concerns about its long-term prospects. Among the challenges are a dwindling workforce, the need to transition away from fossil fuels and an excessive reliance on trade ties with China.
In a further sign of weakness, business surveys by S&P Global on Friday showed private-sector activity declined for a third month in September amid weak demand for goods and services. The manufacturing sector has been in the worst shape lately.
There are some bright spots, according to Fuest, who cited rising disposable incomes.
“We expect consumer demand to stabilize in the coming months,” he said. “The perspective that the ECB may not raise rates further, that will also have a stabilizing effect.”
But with the economy struggling, support for Chancellor Olaf Scholz’s government dropped to a record-low 17% in a poll published Sunday by Bild am Sonntag. That’s 8.7 percentage points below the combined result of the three-way coalition in the 2021 federal election.
The far-right AfD, meanwhile, surged to 22% in a worrying development for democratic parties and investors.
“Government policies have created a lot of uncertainty for companies,” Fuest said. “There’s a lot of bureaucracy. And the question is does the government manage to turn this around, take a different path. If it does then there’s potential in Germany.”
–With assistance from Joel Rinneby, Mark Evans and Marton Eder.
(Updates with more comments from Fuest starting in third paragraph.)
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