Germany business confidence rises despite dire conditions

German firms are getting over the recession blues and expect a stabilisation in Europe’s biggest economy after the turmoil of recent months, the closely watched Ifo survey suggested on Monday.

Germany business confidence rises despite dire conditions
Photo: DPA

The Ifo institute’s business climate index for June rose for a third consecutive month to reach 85.9 points, well ahead of market expectations of 85.3 points and up from a revised 84.3 points in May, it said.

It was the highest reading since last November when Germany unveiled the first of two huge stimulus packages to try to help the country escape the worst effects of the global economy’s biggest downturn in decades.

The institute said that while firms’ dissatisfaction with the current business situation was just as strong as it had been in May, the survey results, “confirm that the German economy is gradually stabilising.”

The Ifo index measuring sentiment among 7,000 firms about current conditions fell slightly, to 82.4 points from 82.5 points in May, while for business expectations the reading rose to 89.5 points from 86.0 points.

The results mirrored another survey published last Thursday, the ZEW index, which jumped to a three-year high this month, and an upbeat poll of companies by the German Chamber of Commerce, DIHK.

And last week, the Economy Ministry expressed cautious optimism, saying that after a 3.8 percent slump in first quarter gross domestic product, GDP, “signs of a stabilisation” were increasing.

Germany, whose economy is heavily dependent on firms and consumers in other countries buying its products, is experiencing its worst recession since World War II.

The government of Chancellor Angela Merkel, who is running for a second term in September’s general election, expects the economy to contract by around six percent this year.

Taxpayer-funded schemes have helped to keep a lid on unemployment, but the labour agency expects the number of jobless to hit four million next year, and the recession has blown a massive hole in Germany’s public finances.

Jennifer McKeown at Capital Economics called the Ifo survey encouraging, but said any pick-up in activity in “might be some time coming” and that a slump of at least six percent was still on the cards this year.

For 2010, McKeown was less optimistic that the government, predicting a „stagnation“ rather than Berlin’s forecast of growth of half a percentage point.

“All in all, after the terrible first quarter for German industry … a strong easing in the rate of decline of GDP can be expected for spring,” said Alexander Koch, economist at UniCredit.

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Worst of crisis now behind us, says Germany’s chief banker

Germany has turned the corner on the worst of an economic crisis sparked by the coronavirus pandemic and is now on the path to recovery, the central bank chief of Europe's biggest economy said Sunday.

Worst of crisis now behind us, says Germany's chief banker
Jens Weidmann. Photo: DPA

“We experienced in the last months the deepest economic slump in Germany's (post-war) history,” Jens Weidmann told Sunday's edition of the daily Frankfurter Allgemeine Zeitung.

“The good news is: the trough should be behind us by now, and things are looking up again. But the deep slump is being followed only by a comparatively gradual recovery.”

Weidmann, who has never minced his words against expansionary policies ramped through in the past by the European Central Bank, on Sunday also voiced support for the unprecedented economic rescue and stimulus packages unleashed by Berlin to shield German companies and jobs.

Chancellor Angela Merkel's government had stunned observers in March when it unveiled a rescue package worth 1.1 trillion euros, smashing through a long-held no new debt dogma to fund the measures.

Earlier this month, it said it would plough another 130 billion euros into various schemes, including a cut in VAT, to stimulate the economy.


Reacting to comments that Germany, once known as a “frugal” nation, was now dramatically loosening its purse strings, Weidmann said: “The image of the Swabish housewife is often wrongly portrayed.

“She is not saving for the sake of saving, but so that there is money that can be spent sensibly and in case there are difficult times. And that is precisely the case here.”

Like nations across Europe, Germany shut schools, shops and sent workers home from mid-March to halt transmission of the coronavirus.

The impact of the health crisis has pushed the economy into a deep recession believed to be the worst since World War II.

After the rate of new infections dropped sharply, Europe's biggest economy began easing restrictions in early May although social distancing rules are still in place and huge events banned.

Nevertheless, the improved health situation and the huge government support have helped lift sentiment, with a closely-watched survey showing confidence among investors surging to its highest level since before the financial crisis.