German Business Sentiment Gain Still Leaves Economy in Slow Lane
The Ifo Institute said on Monday its measure of executives’ outlook rose to a four-month high.
(Bloomberg) --
German business expectations improved in November, adding to signs the downturn in Europe’s biggest economy may be slowly bottoming out.
The Ifo Institute said Monday its measure of executives’ outlook rose to a four-month high, though the reading came in below the median estimate of economists. It sees the economy growing 0.2% this quarter, an improvement from the 0.1% pace in the previous three months.
The mixed report did little for investors, with the euro giving up ground after the publication. It was little changed at $1.1016 as of 10:26 a.m. Frankfurt time.
The readings support the growing -- but still very modest -- optimism about Germany’s economy after it dodged a recession this year. Manufacturing is still contracting, but surveys suggest the worst of a brutal slump is over.
Ifo’s measure of the current situation also rose slightly, as did the overall business climate indicator. The latter improved to 95, a four-month high and in line with expectations. The institute also said retailers expect a very good Christmas.
Still, overall economic growth will remain sluggish for some time and is forecast to be just 0.7% in 2020. That’s barely above the 0.5% pace predicted for this year, which would be the weakest since 2013. There are also plenty of clouds on the horizon, ranging from the trade war to Brexit.
What Bloomberg’s Economists Say...
“Today’s Ifo data add to evidence that Germany’s economic slowdown has reached a nadir. Business surveys remain consistent with very subdued GDP growth in 4Q, though the outlook will be brighter for 1Q if the current trajectory holds.”
--Jamie Rush. Click here for the full REACT.
The slowdown in the euro-area’s onetime powerhouse has led to calls for more government spending to complement the European Central Bank’s sub-zero interest rates and asset purchases.
In her first major policy speech as ECB president, Christine Lagarde called for a new European policy mix, saying fiscal spending should be stepped up.
Germany requires $500 billion in public investments to modernize its infrastructure after doing too little for decades, according to Germany’s top union and industry leaders.
Yet there’s little chance of Berlin materially reversing its approach to balanced budgets. Chancellor Angela Merkel has said the problem isn’t a shortage of money for investment, and that there are sufficient projects in the pipeline.
“We do have some stabilization, we do have growth. But the trouble is the difficulties are mostly coming from outside, from exports, which are weak,” Clemens Fuest, president of the Ifo Institute, said in an interview with Bloomberg Television. “So what the government can do here with traditional fiscal stimulus policy is limited.”
--With assistance from Brian Swint, Kristian Siedenburg and Yuko Takeo.
To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss
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