The sentiment among Stock market professionals about the prospects for the German economy over the next six months is less pessimistic. The economic index calculated by the Centre for European Economic Research (ZEW) based on surveys of analysts and investors rose by a surprising 10.9 points to plus 9.8 points in November. This marks the fourth consecutive month that the ZEW index, a popular indicator on the stock markets, has risen and is now back above zero for the first time since April. Economists previously expected an increase to 5.0 points above zero.
The assessment of the current economic outlook also stabilized, according to the ZEW survey. The corresponding index rose slightly by 0.1 points to minus 79.8 points. “This confirms the impression that the economic trend in Germany has bottomed out,” ZEW President Achim Wambach said about the data published last week.
The business climate among small and medium-sized enterprises also improved slightly in October after five consecutive declines. The corresponding index rose by 2.1 points to minus 17.1 balance points, according to the most recently published KfW-Ifo data. This is due to an improved assessment of the situation. Expectations also increased. “The SME business sentiment turned around in October. This further solidifies the picture that the economic downturn has finally bottomed out,” KfW Chief Economist Fritzi Köhler-Geib said.
Note: Past performance is not a reliable indicator for future performance.
Economy Expected to Gain Momentum After Technical Recession in 2024
Germany’s economy shrank by 0.1 per cent in the summer. If the economy continues to weaken in Q4 as expected by economists, it would enter a temporary, so-called technical recession. In its latest report on the global economy, the International Monetary Fund (IMF) forecasts a GDP decline of 0.5 per cent for Germany this year. This would make Germany the only major economy to shrink.
The German Ministry of Economic Affairs also sees the country continuing to stagnate for the time being. However, the country’s government expects Europe’s largest economy to regain its footing next year. Accordingly, growth rates of 1.3 and 1.5 per cent are expected in 2024 and 2025. After a GDP decline of 0.4 per cent this year, the Council of Economic Experts also predicts growth of 0.7 per cent from 2024.
General Conditions Improve, Inflation Declining Further
The general conditions have recently improved somewhat in view of significantly falling inflation rates, rising real incomes and a slight improvement in economic sentiment, according to the Ministry of Economic Affairs. The recently published data on wholesale prices, for example, indicate a further decline in inflation.
Wholesale prices fell by 4.2 per cent in October in a year-over-year comparison. This is the sharpest decline since May 2020, when the coronavirus pandemic caused enormous economic upheaval. The main reason for the fall in prices was cheaper petroleum products. Producer prices also fell significantly in October for the fourth month in a row. Producers of industrial products charged an average of 11.0 per cent less than a year earlier. In September, prices fell by 14.7 per cent, the biggest drop since the survey was first conducted in 1949.
Producer and wholesale prices are reflected in consumer prices with a certain time lag. Economists therefore expect consumer prices to continue to fall. In October, consumer prices rose by 3.8 per cent, the smallest increase in over two years.
Note: Past performance is not a reliable indicator for future performance.
The labour market also recently provided positive news. Despite the economic downturn, the number of people in employment in Germany rose above the 46 million mark for the first time in Q3, reaching an all-time high. From July to September, 46.04 million people were employed, as reported by the Federal Statistical Office last week. Service providers saw a particularly strong increase in employees during the summer, with the number of people in employment rising by 299,000 or 0.9 per cent compared to the same quarter last year.
Government Planning new Package of Measures to Provide Additional Support For The Economy
The government also wants to revitalise the economy with additional measures. In November, the German Bundestag passed a package of measures to stimulate the economy. The so-called Growth Opportunities Act, which still has to be approved by the Bundesrat, will offer tax relief for companies until 2028 and accelerated authorisation procedures.
The relief to the tune of EUR 7bn per year includes a bonus for investments in climate protection. 15 per cent of expenditure on energy efficiency measures by companies is to be subsidised as direct financial support. Tax incentives are also planned to boost the crisis-ridden housing construction sector, and additional tax incentives for more research are also planned.
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Prognoses are no reliable indicator for future performance.