Business confidence hits unexpected slump

The mood surrounding the German economy somewhat clouded over, as a leading indicator of the business climate slumped for the second month running.

Business confidence hits unexpected slump
President of the Institute for Economic Research, Hans-Werner Sinn. Photo: DPA.

The Ifo Business Climate Index has fallen from 108.5 points to 107.4 points, the Institute for Economic Research in Munich reported on Wednesday.

The Ifo Index is considered as the most significant early indicator for how the German economy is developing.

The Institute for Economic Research calculates the index each month by surveying around 7,000 firms in manufacturing, construction, wholesale and retail. The firms are asked to give their assessments of the current business situation and their expectations for the next six months

Not only is this is the second time in succession that the monthly barometer for Germany's economic activity has dipped, but the extent of the drop is greater than experts had been hoping for.

Analysts had been expecting to see a result of around 108.1 points, Spiegel reported.

“The prospects for the German economy are overcast,” said the Ifo president Hans-Werner Sinn in a statement.

A graph of the index over the last 12 years shows that despite the recent dip, confidence is still reasonably high, but expectations for the coming months are much lower.

A graph showing the Ifo indix since 2003. Photo: Ifo Institut

In June's report, businesses proved to be less satisfied with the current climate and sceptical about the months to come.  

The index for current situations fell from 114.3 to 113.1 points and from 103 to 102 for future expectations.

Experts are tracing the latest slump in the economic mood back to the Greek crisis, which is causing insecurity within the German business sector, analysts from VP Bank told reporters.

Rising interest rates have also been pinpointed as a reason behind the slump in business confidence.

By Matty Edwards

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Where in Germany do people have the highest disposable income?

An economic study has shown huge regional differences in income throughout Germany. So which parts of the country have the most to spend each month, and which are feeling the squeeze?

Where in Germany do people have the highest disposable income?

A study by the Economic and Social Sciences Institute (WSI) of the Hans-Böckler foundation reveals stark regional differences in disposable income in Germany. In some cases, households had as much as double the spending money of those in other parts of the country. 

Here’s where people have the most – and least – disposable income each month.

What is disposable income?

The WSI calculated disposable income as the sum of income from wealth and employment, minus social contributions, income taxes, property taxes and other direct benefits or taxes.

What’s left is the income which private households can either spend on consumer goods or save.

The study, which was based on the most recent available national accounts data for 2019, looked at the disposable income of all of the 401 counties, districts and cities across Germany.

Which regions have the highest and lowest disposable incomes?

The study found that the regions with the highest disposable incomes were in the southern states.

Heilbronn in Baden-Württemberg had the highest disposable income of all 401 German counties and independent cities – with an average per capita disposable income of €42,275. The district of Starnberg in Bayern followed in second place with €38,509.

READ ALSO: REVEALED: How much do employees really earn across Germany’s states?

By comparison, per capita incomes in the cities of Gelsenkirchen and Duisburg in North Rhine-Westphalia were less than half as high, at €17,015 and €17,741 respectively. These regions had the lowest disposable income in the country. 

The study also found that, more than thirty years since German reunification, the eastern regions continue to lag behind those in the west in terms of wages.

According to the WSI, the Potsdam-Mittelmark district is the only district in the former east where the disposable per capita income of €24,127 exceeds the national average of €23,706.

Do regional price differences balance things out?

The study also showed that regionally different price levels contribute to a certain levelling out of disposable incomes, as regions with high incomes also tend to have higher rents and other living costs.

“People then have more money in their wallets, but they cannot afford more to the same extent,” WSI scientist Toralf Pusch explained.

READ ALSO: EXPLAINED: When will Germany raise the minimum wage?

Therefore, incomes in the eastern states, adjusted for purchasing power, are generally somewhat higher than the per capita amounts would suggest.

That could explain why, even after price adjustment, the cities of Gelsenkirchen and Duisburg in western Germany continue to be at the very bottom of the list.

Saxon-Anhalt’s Halle an der Saale, on the other hand, which has an average disposable income of only €18,527, benefits from the lower prices in the east.