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German industry's mood undented by VW scandal

AFP · 26 Oct 2015, 15:09

Published: 26 Oct 2015 14:55 GMT+01:00
Updated: 26 Oct 2015 15:09 GMT+01:00

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The leading economic think-tank Ifo said in its closely-watched business confidence survey that concerns about slowing growth in China, the Volkswagen pollution-cheating scam and the massive influx of mostly Syrian refugees in Europe had dented optimism only slightly this month.

Its headline index slipped to 108.2 points in October from 108.5 points in September, Ifo said in a statement, a much shallower drop than analysts had expected.

At the same time, the German central bank or Bundesbank, said in its latest monthly report that the underlying growth trend remains "very robust."

"The upward momentum of overall economic activity in Germany continued in the third quarter," the Bundesbank said.
But it conceded that growth in the period from July to September may not come out "quite as dynamic" as in the preceding two quarters, when it had stood at 0.3 percent and 0.4 percent respectively.

Still, BayernLB economist Stefan Kipar concluded: "We're not going to see a turnaround to the downside just yet."

'Remarkably resilient'

For its survey, the Ifo institute quizzes businesses about their current business and the outlook for the next six months.
"Companies were slightly less satisfied with their current business situation than in September," said Ifo president Hans-Werner Sinn.

But "optimism with a view to future business developments nevertheless continued to grow," he said.

"The German economy is proving remarkably resilient in view of this autumn's multiple challenges," he said.

Even the discovery of pollution-cheating devices on 11 million Volkswagen cars worldwide "has had no impact on the German automotive industry," Sinn said.

DON'T MISS: Why scandals won't rock Germany's good image

VW is currently embroiled in its biggest-ever scandal after it was exposed with fitting its diesel engines with sophisticated software to skew the results of pollution emissions tests.

The revelations have rocked the auto sector around the world and cast a shadow over the German economy.

But according to Ifo's survey, "the climate index for the automotive sector even continued to rise this month," the think-tank said.

"Assessments of the current business situation and business expectations both improved. Firms plan to ramp up production. Exports, however, are not expected to provide further stimuli," Ifo chief Sinn added.

VW scandal a 'one-off'

Analysts welcomed the better-than-expected reading of the Ifo barometer this month.

"Of course, one should not interpret too much in a single confidence indicator but today's Ifo reading suggests that the German business community is filing the Volkswagen scandal as a one-off and is also shrugging off the risk from a possible Chinese and emerging markets slowdown," said Carsten Brzeski at ING DiBa.

"Despite these external uncertainties and regular concerns about the real strength of the German economy, German business remain highly optimistic," he said.

"Continued growth in the service sector, strong domestic demand and an outside world that might be slowing but is definitely not falling off a cliff, should keep the German economy on the sunny side," the expert continued.

"All in all, the Ifo index shows that the German economy is not totally immune against external slowdowns and internal scandals. However, there is no reason at all to fear an abrupt slowdown," Brzeski said.

Capital Economics economist Jennifer McKeown was more cautious.

"The small fall in the Ifo index in October echoes the message from other indicators that growth is now slowing," she said.

"Admittedly, the decline ... was not as sharp as the consensus forecast. The index remains at a pretty high level. In all, while we do not see German growth screeching to a halt, it seems clear that a modest slowdown is under way at a time when the economy's spare capacity has only just been used up," she said.

Kipar similarly felt that the economic fallout from the VW scandal appeared to be limited for now.

The dip in the headline Ifo index "can be interpreted as a breather" following three consecutive increases since June, the analyst said.

SEE ALSO: Daimler defies gravity with big China sales



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