German Business Confidence Improves For First Time In 7 Months

According to the latest report, business confidence in Germany improved considerably in March, after remaining weak during the past six months, as businesses were more positive about the future and strength of the economy.

The ifo business confidence index increased to 99.6 from a modified 98.7 in the previous month, data from the Munich-based Ifo Institute indicated. Economists had expected the reading to remain unchanged at February’s original score of 98.5. The ifo index rose for the first time since August 2018.

Commenting on the business confidence index, Clemens Fuest, President of ifo Institute, said “The companies are somewhat more satisfied with their current business situation, and they are decidedly more optimistic regarding business in the coming six months. The German economy is showing resilience.”

The survey’s expectations measure rose to 95.6 from 93.8 in February. Economists had predicted a score of 94. The current assessment index increased to 103.8 from 103.4 in February. Economists had anticipated the index to decline to 102.9.

In the meantime, the survey showed that the German manufacturing industry has not yet recovered completely, implying that the activity in the vehicle industry is still gaining traction. Confidence in the factory sector has again diminished and anticipations have been sluggish, slipping to its lowest point since November 2012. The confidence in the services sector, on the other hand, improved dramatically, thanks largely to more positive expectations, buoyed by a more positive evaluation of the already advantageous business environment. Business perceptions have therefore vastly improved.

Due to an evidently enhanced current business situation, optimism recovered in the construction industry in March, and the general view was basically unchanged. The outcomes of the uplifting Ifo survey came after a run of bleak data over the past few days in the largest euro area economy. The poll results of the IHS Markit buying managers showed Friday that the German private sector has grown at its minimum pace in almost six years, driven by a steep decline in manufacturing.

The steep contraction in production order books led to a downturn in new export orders. Due to concerns, delayed decision-making among customers as well as lesser demand in the automotive industry contributed significantly to the drop in demand. A panel of economic advisors to the German government known as the “wise men” lowered this year’s growth projection to 0.8% from 1.5% forecast in November earlier this month.

A recession is doubtful, however, said the panel. Also, the Ifo Institute has cut its German growth forecast from 1.1% to 0.6% this year. The lobby group quoted the industrial sector’s difficulties and the eroding demand for German exports as basic reasons for the decline.

However, the forecast for 2019 has risen from 1.6% to 1.8% as Ifo anticipates to slowly overcome the production difficulties and stay robust with private consumption. The Bundesbank stated in its monthly report that as the production slowdown continued, the German economy is doubtful to recover in the first quarter.