Investor sentiment on Germany’s current economic climate has worsened at the fastest pace since the pandemic hit over three years ago, according to a closely watched survey.
Sluggish manufacturing output, slowing consumer spending and weak export growth have combined with high inflation and rising borrowing costs to cause the German economy to shrink in the past two quarters.
The Leibniz Centre for European Economic Research, or ZEW, said the downturn triggered a sharp fall in its gauge of investor sentiment on the eurozone’s largest economy. The gauge dropped 21.7 points to minus 56.5 when it was published on Tuesday, marking the biggest monthly fall since April 2020. Economists polled by Reuters had predicted only a much smaller decline to minus 40.
ZEW president Achim Wambach said investors had become less gloomy about the outlook for the German economy over the next six months. Its index of economic sentiment remained in negative territory, despite rising 2.2 points to minus 8.5 points.
“The experts do not expect the economic situation to improve in the second half of the year,” said Wambach. “The export-oriented sectors in particular are likely to develop rather poorly due to a weak global economy. Overall, however, the current recession is not assessed as particularly threatening.”
While Germany’s economy has struggled recently, many of its largest companies are faring better. The country’s Dax index of the 40 biggest listed groups is up 20 per cent over the past year to a new all-time high.
Manufacturers have struggled, however. Investors told ZEW they expected this divergence between the dominant services sector and manufacturers to continue, with firms in the machinery, carmaking and chemical sectors all forecast to be hit by falling profits.
Christian Schnittker, an economist at Goldman Sachs, said the survey’s findings were “consistent” with their expectations that Germany’s economy would contract over the course of 2023.
Most analysts expect Germany to achieve only tepid growth this year and the country is expected to be the weakest performer among the world’s big economies, according to the OECD, which forecast gross domestic product in the country would stagnate in 2023.
The European Central Bank is expected to cut its forecast for growth in the eurozone this year when its governing council meets this week.
The downgrade is unlikely to be enough to dissuade the ECB from raising interest rates by another quarter percentage point on Thursday as it tries to bring down inflation that remains three times higher than its 2 per cent target.
A drop in government and household spending caused German GDP to shrink 0.3 per cent quarter on quarter in the first three months of the year. That followed a 0.5 per cent contraction in the fourth quarter of last year.
Source: Economy - ft.com
