Ifo index rises again - "Economy is working its way out of a weak phase"

The mood in the executive floors of German companies brightened in February for the fourth month in a row. The Ifo business climate index rose to 91.1 points from 90.1 points in the previous month, as the Munich Ifo Institute announced on Wednesday in its survey of around 9,000 executives.

Economists surveyed by the Reuters news agency had expected an increase to 91.2 points. "The German economy is gradually working its way out of its weak phase," said Ifo President Clemens Fuest. Although companies were less satisfied with current business than in January, expectations for the next six months increased.

Sentiment in industry climbed to its highest level since May 2022, mainly due to noticeably improved corporate expectations. "However, they assessed their current business somewhat worse," emphasized Fuest. "Companies saw fewer new orders."

Despite a renewed improvement in the business climate, there is no reason to be more confident, said chief economist Alexander Krüger from Hauck Aufhäuser Lampe Privatbank. Because the expectations had brightened mainly because of getting used to the Ukraine war and the lack of new bad news. "Despite decreasing material shortages, the economy is not out of the woods." Commerzbank chief economist Jörg Krämer was also cautious because of the weakening of new business. "For the export country Germany, an economic dip remains likely, but not a classic recession."

The Ifo takes a similar view. "The German economy will not be able to avoid a recession," Klaus Wohlrabe, head of the Ifo surveys, told the Reuters news agency. "But this will be mild." Gross domestic product shrank by 0.2 percent at the end of 2022. If it goes down for the second time in a row in the current first quarter, economists speak of a technical recession. According to Wohlrabe, private consumption in particular is likely to weaken. Many car purchases were brought forward to the end of 2022, while many consumers are now faced with significantly higher down payments from their municipal utilities for energy. "As a result, consumption should develop weaker."

Recently there have been mixed economic signals. The purchasing managers' index for the private sector – industry and service providers together – rose for the fourth month in a row in February and signaled growth for the first time in eight months. However, the Bundesbank is warning of a winter recession in Germany. After contracting at the end of 2022, the economy could also lose momentum in the current quarter.

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