Artisans work on cast metal for the production of works of art at the production site of the Hermann Noack art foundry in Berlin, January 24, 2023.
Tobias Schwartz | Afp | Getty Images
German business sentiment improved in January, according to a widely watched survey by the Munich-based Ifo Institute.
Ifo’s Business Climate Index has risen to 90.2 points from 88.6 points previously, due to a “significant reduction in pessimistic expectations,” the release said. This keeps the index still below its 2021 and early 2022 levels.
Businesses report an overall low level of satisfaction with the current situation. This was offset by improved sentiment on trade and signs of current complacency and optimism in the manufacturing sector for the future.
“We were expecting a possible recession in the fourth quarter of 2022 and the first quarter of 2023. Now it looks like the fourth quarter is flat,” IFO President Clemens Festo said on CNBC. told Arabile Gumede of
“The economy may still contract a bit in the first quarter, but given the improvement in expectations seen by businesses next month, it’s highly likely that we’ll have a technical recession that will result in a negative second quarter. low.”
According to the latest figures from Germany’s National Statistical Office, the country’s GDP grew by 0.4% quarterly and 1.2% for the year between July and September. Initial estimates suggest he will grow 1.9% overall in 2022, with a slump in the final quarter. But Germany and other European countries have repeatedly been warned that they could face a recession due to the energy crisis, slowing manufacturing, high inflation and weak consumer and business sentiment. .
Fuest said energy market developments were key to improving sentiment as market prices fell and companies were no longer prepared for potential gas distributions.
“This is the most important risk to the economy, a scenario where gas supplies are simply inadequate for the winter and some production has to stop. [the] Homes and heating will be the priority,” Festo said on CNBC’s “Street Signs” show.
“That scenario is not on the table right now. Gas stations are full and temperatures have been relatively mild this winter. , also means hurting the economy.”
That comes after Tuesday’s Purchasing Managers Index figures showed a slight return to January growth, following eurozone activity in services and manufacturing. S&P Global’s Eurozone Composite PMI was 50.2, up from 49.3 in December. The 50 mark distinguishes between expansion and contraction.
Fuest said many factors are improving in German manufacturing, including energy prices and easing supply chain bottlenecks.
“We expect the situation to continue to improve slowly but steadily this year,” he said.
One area of concern for Germany is construction, with Fuest pointing to sharply rising costs and rising interest rates.
According to Ifo’s research, the construction industry is less pessimistic about the future and less happy with the current situation.
Mr. Fuest warned of the “mixed bag” of China’s reopening. Not only could increased demand cause inflation in energy prices and raw materials, but it could also make the supply chain flow smoother.
Investors now believe that the European Central Bank’s upcoming interest rate decision could help Europe’s largest economy avoid a recession, A slowdown in headline inflationThe ECB’s next meeting is on February 2nd.
Fuest said the ECB may be slightly less aggressive than last year, when it raised rates four times to raise deposit rates to 2%. He expected rate hikes to continue, given that core inflation, excluding food and energy, is still rising and union wage demands take inflation into account.
“We’re not out of the woods on this yet,” he said.