German Business Outlook Unexpectedly Hits Highest Since 2022
Confidence among German firms unexpectedly improved to the highest since 2022 after the European Union struck a trade deal with the US, despite some criticizing higher tariffs.
An expectations index by the Ifo institute rose to 91.6 in August from a revised 90.8 in July. Economists in a Bloomberg survey had expected a decline. A measure of current conditions worsened slightly.
“Sentiment among companies in Germany has brightened slightly,” Ifo President Clemens Fuest said Monday in a statement. He warned, however, that the “economy’s recovery remains weak.”
The survey offers hope that Germany can stage a revival after two years of recession following Russia’s war in Ukraine. S&P Global’s Composite Purchasing Managers’ Index for August showed private-sector activity in Europe’s largest economy unexpectedly quickened.
The poll will be welcomed by Chancellor Friedrich Merz, who’s struggled to deliver on pledges to reignite growth by cutting red tape, overhauling the labor market and bolstering domestic consumption.
“We’re not just in a period of economic weakness, we are in a structural crisis of our economy,” Merz said Saturday in a speech. “This task is bigger than one or the other may have imagined a year ago.”
Short-term pressure looks set to remain. Data last week revealed a 0.3% decline in gross domestic product in the second quarter — much steeper than initially estimated. The outcome was mainly due to a much weaker performance by manufacturers following a surge in US business at the start of the year to avoid tariffs, though investment was also a big drag.
This quarter is also seen as vulnerable to trade friction. The agreement that Brussels struck with President Donald Trump in July will see most shipments to the US hit by levies of 15% — a major headwind for Germany’s export-orientated business model.
At the same time, a fiscal package to upgrade infrastructure and retool the military should improve the medium-term outlook, with effects likely to kick in next year.
Source : Bloomberg
