German Business Outlook Improves Much More Than Expected

Germany’s business outlook improved much more than anticipated — feeding hopes that the economy will recover from a malaise that’s turned it into the euro zone’s laggard.

Author of the article:

Bloomberg News

Alexander Weber

Published Mar 22, 2024 • 1 minute read

2{9pg2340vk1v98sq0g6sv()_media_dl_1.png Ifo Institute(Bloomberg) — Germany’s business outlook improved much more than anticipated — feeding hopes that the economy will recover from a malaise that’s turned it into the euro zone’s laggard.

An expectations gauge by the Ifo institute rose to 87.5 in March from a revised 84.4 the previous month. That’s the highest since May 2023 and exceeds the 84.7 median forecast in a Bloomberg survey. A measure of current conditions also rose more than expected.

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“The German economy glimpses light on the horizon,” Ifo President Clemens Fuest said in a statement.

Europe’s largest economy probably fell into a recession at the tail end of last year, with the Bundesbank reiterating Thursday that a contraction in the first quarter of 2024 is likely due to protracted manufacturing weakness.

Business surveys from S&P Global this week backed up this assessment. While the services sector saw conditions improve and approached stagnation, an index of factory activity unexpectedly declined further below the threshold signaling expansion.

Forecasters are counting on consumers to drive a modest recovery in the coming months as inflation retreats and salaries improve amid a robust labor market. Interest-rate cuts by the European Central Bank that may start in June should also ease the burden of high borrowing costs.

The euro zone as a whole has fared better, with services gaining more momentum than anticipated in March’s Purchasing Manager Indexes.

This sort of divergence has sparked a debate in Germany over structural forces like high energy costs, adverse demographics and a strong reliance on Chinese inputs that could keep growth limited for a longer period of time.

—With assistance from Joel Rinneby and Kristian Siedenburg.

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