Business climate – mood is improving, but only a little – economy

Despite fears of a recession on the stock exchanges, the mood in the German economy has recovered somewhat after the Ukraine shock. The Ifo business climate, a key indicator, surprisingly brightened in April. The barometer rose by one point to 91.8 points, as the Munich Ifo Institute announced in its monthly executive survey. Experts had actually expected a further deterioration. After the mood slump in March, the economy is now “resilient,” said Ifo President Clemens Fuest.

Leading economists warn that worries about an economic downturn have not disappeared. “Business expectations in industry are still at levels at which recessions had occurred in the past,” said Commerzbank chief economist Joerg Kraemer. It is fitting that investors’ fears of a downturn have even increased in recent weeks: “The stock markets are weighed down by the fear that the interest rate hikes necessary to combat persistent inflation will damage the economic engine, which was first driven by the corona pandemic and then by the war in Ukraine has come to a standstill,” said investment strategist Jürgen Molnar of brokerage house Robomarkets. “The question now no longer seems to be whether, but only how severe a recession will be in Europe.” Another stress factor was the corona lockdowns in dozens of Chinese cities. Ifo expert Klaus Wohlrabe warned that the consequences of these measures to contain the corona pandemic would hit the German economy in the next few months: “This will exacerbate the supply chain problems in industry and limit the availability of goods in retail.”

In the manufacturing sector, however, the Ifo barometer initially rose again in April after the crash in the previous month. In the service sector, the business climate even improved noticeably. But in construction, the barometer fell to its lowest level since May 2010. The industry, which has been booming for many years, is now looking to the future with skepticism. “Less than a quarter of our construction companies expect even higher sales in 2022, while a good 40 percent expect lower sales than in 2021,” said Felix Pakleppa, General Manager of the Central Association of the German Construction Industry: “We have a difficult year ahead of us.”

Chief economist Alexander Krüger from the private bank Hauck Aufhäuser Lampe doesn’t see the rise in the Ifo barometer as a turning point: “Due to the Ukraine war, the general weather situation is no different than it was a month ago. That’s why companies remain in a bad mood, especially with a view to the future.”

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