IFO index falls
Bundesbank expects growth – economists skeptical
05/24/2023, 2:08 p.m
In the middle of the quarter, the Bundesbank predicts that the German economy will return to growth. It is unclear how sustainable the development is. Skepticism is increasing again in the executive floors. Economists tend to expect lower economic output in the second half of the year.
After stagnating at the beginning of the year, the Bundesbank expects economic growth in Germany to return in the spring. However, according to economists, the prospects for the economy are becoming increasingly gloomy. “In the second quarter of 2023, economic output should increase again slightly,” writes the Bundesbank in its monthly report. “Easing delivery bottlenecks, the high backlog of orders and lower energy prices favor the continuation of the recovery in the industry.” This should also support exports.
However, economists do not expect big jumps – also in view of the latest figures from the Munich IFO Institute. For the first time in six months, the mood in the economy has clouded over again: the IFO business climate fell by 1.7 points on the previous month to 91.7 points. The companies surveyed assess the prospects significantly more pessimistically than in the previous month.
The drivers of the development were significantly more pessimistic expectations. But the companies were also a little less satisfied with their current business: “The German economy is skeptical about the summer,” said IFO President Clemens Fuest. The mood in the economy has received a “significant damper”.
Consumption fails due to high inflation as a motor
“The clear decline in the IFO business climate is not an outlier. Because other important leading indicators such as the purchasing managers’ index for industry or incoming orders have been pointing clearly downwards for a long time,” classified Commerzbank chief economist Jörg Krämer. He thinks a technical recession in the second half of the year is more likely than a recovery. VP Bank chief economist Thomas Gitzel also assumes that the German economy will shrink in the second half of the year: “The still high inflation rates and the significant rise in interest rates will first show their effects.”
In this quarter, the Bundesbank expects little impetus from private consumption, which failed to support the economy in the first three months of the year due to inflation. “The real net income of private households should at least not fall further due to the sharp rise in wages, despite persistently high inflation. Private consumption is therefore likely to stagnate,” write the Bundesbank economists.
The comparatively high inflation is eroding the purchasing power of consumers. In view of the high price increases for food, for example, it is to be expected that the inflation rate will only drop very gradually, the Bundesbank predicts.
The German Chamber of Industry and Commerce (DIHK) is anticipating an economic downturn and high inflation for this year. There were still no signs of a broad upswing. According to a forecast by the EU Commission, Germany will be at the bottom of the table in the euro zone in terms of economic momentum, with growth in gross domestic product (GDP) expected to be 0.2 percent this year.
According to preliminary data from the Federal Statistical Office, the gross domestic product in Germany stagnated in the first quarter compared to the previous quarter. Europe’s largest economy narrowly avoided a winter recession. At the end of 2022, economic output had fallen by 0.5 percent.