ifo business climate: sentiment in the economy is improving

Status: 04/25/2022 11:28 am

The mood in the German economy surprisingly improved in April. However, not all sectors are optimistic about the coming months.

Despite the war in Ukraine, the mood on the executive floors of German companies has improved somewhat. This is the result of the business climate index published today by the ifo institute. The barometer unexpectedly rose to 91.8 points in April, as the Munich Institute announced today in its monthly survey of some 9,000 managers.

Economists polled by Reuters, on the other hand, had expected a drop to 89.1 points. In March, the most important economic barometer in Germany fell to 90.8 points due to the Russian invasion of Ukraine.

“The economy shows resilience”

“After the initial shock of the Russian attack, the German economy has proven resilient,” ifo president Clemens Fuest said. Executives assessed its business situation and outlook for the next six months as better than recently, the mood has stabilized at a low level. The still pessimistic expectations of companies improved markedly, but the current situation was hardly rated as better.

However, the evaluation of the sectors differs, because the business climate improved especially in industry and among service providers. Service providers were significantly more satisfied with current business and less pessimistic about the coming months. Transport and logistics companies, in particular, were able to recover from the previous month’s decline. Against the background of an easing Corona situation with significantly relaxed measures, the business climate was also able to improve in the hotel industry. The Purchasing Managers’ Index recently released by financial services provider S&P Global was also surprisingly strong.

In trade and construction, however, the mood deteriorated: in the construction industry, the index fell to its lowest level since May 2010; Industry expectations have never been so gloomy since reunification. Large material bottlenecks in particular are having a negative impact on the business.

Ukraine war is crucial for further development

According to economists, the evolution of the situation depends on the development of the war in Ukraine. According to calculations by the Bundesbank, an escalation and tightening of sanctions against Russia would hit the German economy hard. Already at the beginning of the year, the economy of this country was walking afloat.

Because the war is already having a direct impact on companies in Germany due to the rise in energy prices: 46 percent of employers said in a survey of 1,100 companies published today by the ifo institute that they were reducing their investments. However, only 6 percent of companies consider it likely to stop production or relocate business premises abroad.

According to the survey, about 40 percent of companies are affected by rising energy costs, and most cannot do without raw materials such as gas and oil for production. Consumers are likely to feel this too, because almost 90 percent of companies assume they will raise the prices of their products.

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