Turning point in the industry?
German economy heading for recovery
23.05.2024, 13:30
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A turnaround is not yet in sight. But important indicators suggest that the German economy is likely to remain on a growth path. The service providers in particular are giving hope, but things are also looking up in industry.
Rays of hope for the German economy: Growth picked up speed in May. The purchasing managers’ index, which focuses on the private sector, rose by 1.6 points to 52.2 points, as the financial services provider S&P Global announced in its monthly company survey. And the German Chamber of Industry and Commerce (DIHK) is no longer quite so pessimistic about the economy this year.
Based on a survey of more than 24,000 companies from all sectors and regions, the DIHK now expects stagnation. In February, a minus of 0.5 percent was predicted for 2024. However, the German economy is still in danger of shrinking in two consecutive years for the first time in more than 20 years. In 2023, gross domestic product (GDP) fell by 0.2 percent.
“The economy is not slowing down,” said DIHK managing director Martin Wansleben. “But it is not going up either.” The construction industry and most industrial sectors in particular are pessimistic. The level of investment is still below the levels seen before the outbreak of the corona pandemic, i.e. for five years now. An upturn is still not in sight. Wansleben pointed to structural challenges. Companies currently see weak domestic demand as the biggest business risk. This is followed by high energy and raw material costs and the shortage of skilled workers. The economic policy framework is also frequently cited as a risk.
Things are going well for the travel industry, civil engineering and chemical industries
But there are also bright spots. “It tends to be the service providers,” said DIHK economic expert Jupp Zenzen. The association expects a noticeable improvement and growth of one percent, especially in private consumption, because inflation is likely to fall noticeably to just 2.3 percent. The travel industry and trade fair organizers are booming, thanks in part to catch-up effects after the pandemic. Civil engineering is also doing well, benefiting from many orders in the energy infrastructure. Within industry, the chemical industry stands out positively.
Chief economist Cyrus de la Rubia of Hamburg Commercial Bank also referred to the service providers: “The service sector in particular showed robust growth rates in May and has been expanding for three months in a row.” The bank is the sponsor of the purchasing managers’ index. According to the economist, those who predict a continued weakness in the German economy could soon be proven wrong.
Industrial barometer rises more than expected
Economists surveyed by the Reuters news agency had predicted a smaller increase in the purchasing managers’ index on average. In the service sector, business was even better than in April, and industrial production continued to stabilize. The barometer for the service sector rose by 0.7 points to 53.9 points. Despite an increase of 2.9 points, the value for the ailing industrial sector remained well below the growth threshold of 50 points at 45.4 points. However, experts had only expected 43.1 points. “This could be the turning point in industry,” said de la Rubia.
According to the Bundesbank, the German economy has regained its footing and is expected to remain on a growth path in the spring. Economic output is therefore expected to rise again slightly in the second quarter of 2024. Gross domestic product (GDP) rose by 0.2 percent from January to March compared to the previous quarter, after shrinking by 0.5 percent at the end of 2023.