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German business morale improves again in March

German business confidence climbed for the sixth straight month in March, a key survey showed Monday, but analysts warned that recent banking turmoil could still rattle Europe's biggest economy.

Published: 27 March 2023 12:14 CEST

Shoppers in Hamburg

Shoppers in Hamburg city centre. Photo: picture alliance/dpa | Daniel Bockwoldt

The Ifo institute’s monthly confidence barometer, based on a survey of about 9,000 companies, jumped to 93.3 points, up from 91.1 points in February.

The improvement was better than expected, with analysts surveyed by Factset predicting a reading of 91.2 points.

“Despite turbulence at some international banks, the German economy is stabilising,” said Ifo president Clemens Fuest.

Lower energy prices and the reopening of China’s economy have boosted confidence in recent months, as Germany proved more resilient than initially feared to the fallout from the Ukraine war.

But the economy is not out of the woods yet, said ING bank economist Carsten Brzeski.

“We fear that the latest financial turmoil will reach the real economy in the coming months,” he said, in a nod to recent stress in the global banking system.

The impact was already visible in Germany’s closely-watched ZEW investor confidence survey last week, which fell for the first time in six months following the collapse of several US regional lenders and the forced UBS takeover of Credit Suisse.

“The Ifo index can react with a delay of one to two months to unexpected events and financial market turmoil can clearly affect the real economy over time,” Brzeski warned.

READ ALSO: EXPLAINED: How America’s banking crisis could hit consumers in Germany

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German economy rebounds from recession, but growth stays weak

Output rose by 0.2 percent in the first quarter of 2024 in comparison with the previous three months, federal statistics agency Destatis said in preliminary figures.

By contrast, Europe’s largest economy shrank 0.5 percent in the fourth quarter of 2023, according to a revised figure out from Destatis. That revised figure was worse than its previous estimate that GDP fell by 0.3 percent in the quarter.

The statistics agency however upgraded its estimate for the whole of 2023, suggesting the German economy contracted only 0.2 percent over the year instead of 0.3 percent.

The increase in the first quarter of 2024 reflected an improvement in the construction industry and in exports, Destatis said. Household consumption however fell in the quarter, according to the agency.

The economic mood in Germany has been pessimistic in recent months, as businesses have had to manage increased energy costs, high inflation and rising interest rates. But with the costs for energy coming down and inflation easing, the outlook has improved. The government last week adjusted up its forecasts for 2024, predicting growth of 0.3 percent instead of 0.2 percent.

The first quarter improvement showed “the German economy can still grow after all”, ING bank analyst Carsten Brzeski said. “Optimism has returned to the German economy.”

The rebound would however be limited by “structural weaknesses”, Brzeski said.

“Higher oil prices as a result of the military conflict between Iran and Israel, as well as the ongoing tensions in the Red Sea, are likely to weigh on industry and exports once again,” he said.

An increasing number of insolvencies could also weaken the labour market, Brzeski warned.

Unemployment in Germany however remained stable, according to figures published by the federal employment agency on Tuesday. The joblessness rate stood at 5.9 percent in April, the BA federal labour agency said.

READ ALSO: Can Germany revive its struggling economy?

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