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Ifo index falls again: “No mess for business”

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Ifo index falls again: “No mess for business”

Ifo index falls again
“No presents for business”

The worsening pandemic situation has further clouded expectations in the German boardrooms. There is some optimism from the manufacturing sector. Economists are increasingly counting on the fact that there will be a decline in economic output in winter.

The fourth corona wave continues to depress the mood in the management levels of the German economy. The business climate index determined by the Munich Ifo Institute fell for the sixth month in a row: from 96.6 points in November to 94.7 points. The companies assessed their current business situation less positively and pessimism with a view to the first half of 2022 increased. “There will be no presents for the German economy this year,” said Ifo President Clemens Fuest.

The exacerbated pandemic situation hits consumer-related service providers and retailers hard, explained the Ifo. The business climate in the service sector “collapsed” – the last time the index in this sector fell more sharply in April 2020. According to the survey, companies were “noticeably” less satisfied with ongoing business, and their expectations, which were still slightly optimistic, turned into pessimism. According to Ifo, the polls plummeted, especially in tourism and the hospitality industry.

The index also fell significantly in trading. Companies were far less positive about the current situation and their expectations fell to their lowest level since January. The development of the survey values ​​in the retail sector was “just as dramatic as last winter,” said the institute.

Almost 82 percent of retailers suffered from delivery bottlenecks in December, of all times in the high-volume pre-Christmas period. “Procurement problems for raw materials and preliminary products have worsened,” said Ifo expert KLaus Wohlrabe also with a view to the industry, in which, for example, the indispensable semiconductors are missing. In addition, there would be the Corona requirements for retailers, “fewer customers come”. In the construction industry, the business climate also deteriorated. The pessimism regarding the coming months increased noticeably, as the institute explained.

On the other hand, the situation looks more positive in the manufacturing sector: Here the index rose again after falling five times in a row. This was due to more optimistic expectations of the companies, said the Ifo. The order backlog increased significantly. “That is a silver lining,” said Wahlrabe. He cannot yet give the all-clear on the price front. “Price increases remain on the corporate agenda,” he said. In the industry, at least every second company expects this.

“Problems gradually pile up in a wave”

Based on the survey, the majority of economists are now expecting a decline in economic output in the winter half-year. For Andreas Scheuerle from Dekabank, from the company’s point of view, “the problems are gradually piling up into a wave that threatens to wash away growth”. The business expectations are as “bad as in the euro debt crisis”.

“The mood continues to cloud over, because just as the delta wave finally begins to break, another setback threatens from Omikron,” says Fritzi Köhler-Geib from the state-owned KfW. An increase in new infections and hospital pollution “can only be stopped with additional containment measures”. It is likely “that German economic output will shrink at the beginning of the new year, but that the upswing will continue from spring onwards”.

Alexander Krüger from Bankhaus Lampe has a similar opinion: “For the winter half-year the chances are getting worse that the economy can avoid a technical recession.” The “hopes for more everyday business life” were once again disappointed in the “pandemic”.

The Bundesbank also expects a setback in the winter half-year. “The upswing is delayed somewhat,” said Bundesbank President Jens Weidmann about the central bank’s new forecast. It lowered its estimate of the calendar-adjusted gross domestic product (GDP) for 2021 to 2.5 (previously 3.7 percent) and for 2022 to 4.2 (June forecast: 5.2) percent.

Jörg Krämer from Commerzbank, meanwhile, refers to the signs of a surprising stabilization in the industry. There are increasing “signs that the delivery bottlenecks have at least not worsened. But he too assumes that the economy will shrink somewhat in the winter half-year.

For the business climate index, the institute surveys around 9,000 companies every month. They are asked to assess their current business situation and to state their expectations for the next six months.

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