Economy: Ifo business climate falls to its lowest level since February

Economy
Ifo business climate falls to its lowest level since February

The fourth corona wave, uncertainties about the Omikron virus variant and delivery bottlenecks spoil the mood in the German economy before Christmas. The Ifo business climate index fell for the sixth time in a row in December.

“The worsening pandemic is hitting consumer-related service providers and retailers hard,” explained Ifo President Clemens Fuest. Bank economists assume that Europe’s largest economy will shrink in the winter half-year before it should pick up again in spring. The Deutsche Bundesbank anticipates weaker growth this year and next and higher inflation than assumed in the summer.

The German economy is shrinking

“The upswing is postponing a bit,” said the outgoing Bundesbank President Jens Weidmann. In the current year, the central bank expects real GDP growth of 2.5 percent. In June she was still assuming a calendar-adjusted increase of 3.7 percent. An increase in economic output of 4.2 percent is expected for 2022 (June forecast: 5.2 percent). The Bundesbank experts are thus somewhat more optimistic for the coming year than many economic research institutes, who are expecting growth of less than 4 percent.

Christoph Swonke, economic expert at DZ Bank, spoke of an “economic stuttering start” with a view to the coming year. The economic engine should not start to run better until the second quarter. ” Commerzbank chief economist Jörg Krämer expects the German economy to shrink somewhat in the winter half-year.

Corona measures put a strain on retail

Stricter measures to combat the corona pandemic are particularly affecting the important Christmas business in retail and hospitality. Many retailers have already written off the Christmas business, the Handelsverband Deutschland (HDE) recently complained. The hotel and restaurant association Dehoga warned that many companies could no longer work profitably. With the 2G rule – access only for vaccinated and convalescent people – sales in restaurants and hotels have already collapsed by more than half. “Even higher losses are reported by companies in countries where 2G Plus applies,” said Dehoga President Guido Zöllick, referring to the results of a recent survey of 4,800 companies.

The Bundesbank economists assume that private consumption will pick up significantly from spring 2022. “For a while, consumers will spend more of their disposable income than they did before the pandemic,” Weidmann explained. In addition, the delivery bottlenecks should resolve by the end of 2022, which should temporarily give exports a strong boost.

Weidmann warns

Weidmann warned again not to underestimate the risk of excessive inflation. “As in the euro area overall, the upside risks outweigh the inflation rate,” said the Bundesbank President, who is giving up his post on December 31st. “Monetary policy should not ignore these risks and remain vigilant”. Weidmann had repeatedly criticized the European Central Bank’s ultra-loose monetary policy.

For this year, the Bundesbank expects an inflation rate of 3.2 percent based on the harmonized consumer price index, which the ECB uses for its monetary policy in the euro area (June forecast: 2.6 percent). In the coming year, the rate should rise to an average of 3.6 percent, although special effects such as the withdrawal of the temporary VAT cut will then no longer apply. In the summer, the central bank had assumed a significantly lower rate of inflation of 1.8 percent for 2022.

High raw material prices

The Bundesbank referred to the sharp rise in raw material prices for energy on the international markets. In addition, companies would pass higher costs on to consumers due to supply bottlenecks and expand profit margins when demand is strong.

According to the central bank, the inflation rate will fall again in 2023. At 2.2 percent, however, it will remain comparatively high in 2023 and 2024. Reasons for this are significantly rising wages, the good economic situation, but also the costs caused by the conversion to a climate-neutral economy.

dpa