German Business Morale Improves Again But Worries Linger

 

- Headline reading highlights improving business sentiment

- Report downturn may be ‘less severe’ than many expected

- Germany braces for fallout over Russian oil price cap

 

By Harry Daniels 

LiveSquawk News 

@harrydaniels71 

 

24 November 2022 | 15:00 GMT 

 

 

German managers conveyed a more positive frame of mind about current and future business prospects, albeit the reading remains at comparatively low levels.

 

November’s poll of company executives conducted by Germany’s Ifo economics institute showed an above-forecast increase in the headline business climate index to 86.3, up from a positively revised 84.5 October print and the market estimate of 85.0.

 

The expectations component of the index – a measure for the coming six months – printed 80.0 ahead of the 77.0 expected and ahead of last month’s upwardly revised 75.9. The outlook bettered

the market forecast of 77.0.

 

The current assessment component of the index was the only disappointment, falling to 93.1 from October’s 94.2 and below the 93.8 predicted.

 

HSBC economist Christian Fuertjes posited that at first glance, the headline IFO numbers and in particular the huge jump in business expectations were an outright positive sign for the prospects for the German economy. “It seems that business sentiment has finally found the floor in September and October and at least some of the worst fears with respect to a deep economic recession caused by the combination of the energy crisis, the cost of living squeeze, and tightening financial conditions in light of rising interest rates will likely not materialise.”

 

Thursday’s Ifo results came just two days after S&P Global said its preliminary composite purchasing managers’ index for Germany rose from 45.1 to 46.4 beating the consensus of 44.9.

“Overall, both business sentiment survey publications this week are thus indicating that while the German economy has likely entered a recession in Q4 2022 there is now a perception among companies that this recession might not be as deep as some have feared when wholesale energy prices skyrocketed in early September and while price support measures had yet to be devised,” Fuertjes observed.

 

Despite the improvement in sentiment there maybe further storm clouds gathering for Germany and the EU bloc. This week, the European Commission put forward proposals to cap the price of imported natural gas to help assuage worries over steep energy price gains. However, the plan has received a frosty response from as many as 15 member states, worried that limit has been set too high and is also likely to add to the disruption experienced by consumers this year. Ministers are to discuss the initiative Thursday, at a summit of EU energy ministers.

 

According to experts, the bulk of the criticism lies with the fact that at such a high price the plan is ineffectual and wouldn't even have been triggered during the summer's record prices.

 

Russia has threatened to cut supply to any country that complies with the cap.

 

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