Germany’s business outlook improved in October — adding to evidence that the country’s economic downturn may be ending.
An expectations gauge by the Ifo institute rose to 87.3 from 86.4 in September. That’s the highest level since June and better than economists had predicted in a Bloomberg survey. A measure of current conditions also advanced.
“In manufacturing, companies tell us the current situation has worsened, but they expect an improvement in the months to come,” Ifo President Clemens Fuest told Bloomberg TV on Friday. “We get a positive reading from services, where companies — in particular in tourism, in IT, in logistics — are telling us things are improving.”
“After four declines, this is a positive sign,” he added. “But whether it’s a turnaround, we don’t know yet.”
While the mood in Europe’s biggest economy remains depressed, there are at least some signs of stabilisation. Surveys by S&P Global on Thursday showed the private-sector economy contracting at a slower pace, with stronger growth in the services sector counteracting prolonged weakness in manufacturing.
The flagship automotive sector has become a prime example of the country’s struggles to update an aging business model. Mercedes-Benz Group AG said Friday it plans to step up cost reductions after fierce competition and weaker demand in China hit profits.
“The positive readings are coming from other sectors — the chemical industry for instance — but the car sector continues to face challenges,” Fuest said. “It’s a fact that German companies are facing headwinds in this transition to electric mobility.”
The Bundesbank said this week that it expects gross domestic product to be broadly flat in the fourth quarter following a shallow recession in the six months to September. But with consumers remaining hesitant, there’s little to suggest a strong pickup will materialise soon.
The industrial sector has been the biggest source of concern, with companies lamenting high costs, excessive bureaucracy and political uncertainty. US elections present another risk as a win for Donald Trump could usher in new trade tensions that would further hurt the country’s export-led growth model.
“We have higher energy prices and we have the prospect of a more protectionist world — and that will have an impact,” Fuest said. “This is really a challenging environment for German manufacturing. For Germany as a whole, probably growth will have to come more from other sectors including services.”
