New data highlights economy’s resiliency

German business confidence posted Friday a surprise rise to levels last seen in mid-2007, suggesting Europe's powerhouse economy will remain resilient and not return to recession.

New data highlights economy's resiliency
Photo: DPA

The Ifo economic research institute said its widely-watched business confidence index edged up to 106.8 points from 106.7 points in August.

The latest figures “reinforce the view that the German economy will prove quite resilient against any downward influences from a weakening global economy,” IHS Global Insight senior economist Timo Klein said.

The index had been expected to slip to 106.5 points, according to analysts polled by Dow Jones Newswires.

But “firms are again more satisfied with their business situation than in the previous month,” Ifo president Hans-Werner Sinn said in a statement.

In the manufacturing sector, sentiment slipped slightly but retailers were more positive, with the current situation assessed to be at its best since the boom that followed German reunification in 1990.

The outlook also perked up in the construction sector, raising the overall reading to levels not seen since the global financial system was slammed by a meltdown of the US market for high risk mortgages in mid-2007.

“Double-dip fears are not shared by the company captains polled by the Ifo institute,” Morgan Stanley counterpart Elga Bartsch said.

Klein explained that “for Germany, with a recovering labour market supporting private consumption, the dependence on exports and thus global demand growth is being reduced at present.”

Ifo’s report contrasted with gloomy news Thursday when data showed activity across the 16-nation eurozone hit a seven-month low in September, according to the purchasing managers’ index (PMI) compiled by London-based data and research group Markit.

“The Ifo business climate is less influenced than the purchasing managers’ index by factors such as the year-on-year trend for order intake and production … earnings also play a significant role,” Commerzbank economist Ralph Solveen said.

Ifo’s forward looking expectations sub-index also dropped however.

The measure of business expectations for the next six months fell to 103.9 points in September from 105.2 points in August, suggesting the export-led economy will cool later this year in line with weaker activity abroad.

The Ifo institute surveys around 7,000 German manufacturing, construction, wholesale and retail companies each month to establish the widely-followed index of business sentiment.

The German central bank and economists now expect full-year growth of at least 3.0 percent, probably surpassing advances elsewhere in the eurozone, and in Japan and the United States.

In October, the German government is expected to raise its official 2010 forecast of 1.4 percent growth.

UniCredit economist Alexander Koch was among the many who believe the economy will see slower growth later this year but not fall back into recession.

“Barring a global double-dip, the cooling down is not likely to turn into an outright downswing,” he said.


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German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.