Signs of economic recovery are increasing |


As of: May 7, 2024 4:24 p.m

The German economy will not make any big leaps this year. But the current leading indicators in particular give hope for a change for the better.

Pandemic, wars, energy price shocks: So far, the new decade has not exactly offered ideal conditions for healthy economic and labor market development. The German economy will also be in decline in the spring of 2024. With narrow growth of 0.2 percent in the first quarter, it barely escaped recession.

But there is increasing hope to be drawn from the daily flood of various economic data. In particular, the indicators that provide information about future economic developments provide reason for this.

Leading indicators signal growth

Most recently, the purchasing managers’ indices for Germany and the Eurozone made people sit up and take notice in April. To do this, the economists consciously ask those responsible who have to assess both the situation of their company and its procurement markets about their current business prospects.

For the euro zone, the current index from S&P Global showed a further increase to 51.7 points, the highest level since May 2023. Values ​​above 50 indicate an increase in planned transactions, i.e. growth. The corresponding purchasing managers’ index for Germany, which combines the sub-indices for industry and services, jumped above this threshold in April for the first time since June 2023 to a value of 50.6.

The business climate index compiled by the Munich Ifo Institute has been established as the most important German leading indicator for years. And this indicator, which measures the mood in the executive suites, has also recently delivered a much-noticed signal, namely the third increase in a row. According to all experience, this constellation points to an increase in economic activity.

The industry’s order situation is sobering

This should not obscure the deep problems that other indicators reveal. The 4.3 percent decline in industrial orders in the first quarter remains sobering, and residential construction also appears to be far from recovering. Finally, economic policy in Germany does not receive the best marks from many economists. Commerzbank chief economist Jörg Krämer speaks of a “year-long erosion of location quality”.

And yet there is reason for hope in other economic sectors – especially in those that have recently caused concern. The latest export data suggests a significant recovery in the previously declining Chinese business. In March, total exports rose by 0.9 percent compared to February. 3.7 percent more were exported to China.

Consumer sentiment is recovering

Above all, something is happening in domestic consumption, which accounts for a large part of economic output and which has suffered particularly from high inflation in the past two years. From a historical perspective, consumer sentiment remains at a modest level. Nevertheless, thanks to falling inflation, German consumers are in better spirits than they have been in two years.

The consumer climate index collected by market researchers GfK and NIM rose surprisingly significantly in May by 3.1 to minus 24.2 points. This was the third increase in a row and is reflected in the latest retail data: In March, German retailers, adjusted for inflation, had 1.8 percent more sales than in the previous month. This was the largest increase since November 2021.

Interest rate prospects improve Business prospects

Another important factor is likely to come into play in the second half of the year: the development of interest rates. This is likely to be more important than the threat of a possible new Trump era exacerbating the already existing protectionist tendencies in the USA. Whether the ECB begins its interest rate cuts on June 6th as signaled or later: the interest rate level and thus the costs of raising capital will fall, which is already reflected in the business prospects of companies.

The forward-looking indicators therefore convey a very clear message: Even if the German economy as a whole will only make slight progress this year, it is likely to be spared another recession after the 0.2 percent decline in 2023.

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