Germany – economic slump maybe less bad

In view of the brimming gas storage facilities and decreasing supply bottlenecks, the German economy is preparing for a rather mild winter recession. This can be seen in the Ifo business climate index, which surprisingly rose by 1.8 points to 86.3 points in November. The barometer published on Thursday by the Munich Ifo Institute is considered a fairly reliable indicator of economic development. Although companies were less satisfied with current business, the pessimism with regard to the coming months eased noticeably. “The recession is likely to be less deep than many expected,” said Ifo President Clemens Fuest.

The mood improved across the board – from manufacturing and services to trade and construction. After a revision of the October value, it is now also apparent that the Ifo business climate has brightened for the second month in a row. “The German economy is sending out signals of hope. It’s doing better than expected,” said Ifo expert Klaus Wohlrabe to the Reuters news agency. He added to the brightened mood in retail: “The state aid could have an effect here.” The expert also referred to the gas price brake, with which households should be relieved of energy costs.

However, Deutsche Bank boss Christian Sewing warned of caution with the federal government’s aid packages. The current aid package was cut correctly, but a permanent extension is not possible for Germany either, said Sewing in Berlin. “At some point Germany too will have to explain this to the capital market in such a way that the capital market believes in Germany’s debt capacity.”

For German companies, the key question now is whether they have access to a secure and competitive energy supply, said Sewing. If the economy’s energy supply is not secured, investments in other countries will increase. As the Association of German Chambers of Industry and Commerce (DIHK) recently stated, the energy crisis raises the question of competitiveness. Companies in this country paid three times as much for electricity as in neighboring France and even five times as much as in the USA. According to a survey, more than one in four companies in the chemical industry sees itself forced to cut back.

According to Commerzbank chief economist Jörg Krämer, the clear increase in the Ifo business climate shows that companies are recognizing a certain improvement in the general economic conditions. For example, the risk of gas rationing has fallen significantly in recent weeks: “I still expect a recession, but more than ever no economic collapse.”

Economy clock is still on crisis

The so-called Ifo economy clock shows that the economy is in crisis mode despite the improvement in sentiment. Because the assessments of the companies surveyed on the business situation and expectations are below average on balance. According to KfW chief economist Fritzi Köhler-Geib, the clear increase in business expectations shows that companies are no longer “so boundlessly pessimistic”. Breakdowns like those in the financial or corona crisis are only likely in the event of a gas shortage. “And thanks to full storage facilities and, above all, considerable savings efforts by companies and households, we should be able to get past that,” explained the economist.

The latest survey data from the financial services provider S&P Global suggests that the economic downturn has already weakened in November as price pressure eased. Ifo boss Fuest also sees signs of a slight improvement in the economic picture. The mild weather so far, full gas storage facilities and the plans for LNG terminals that are becoming more concrete are important points: “All of this indicates that the scenario is brightening.” (reuters)

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