Germany’s sentiment ‘brightens’ in January as expectations pick up – Ifo

MADRID (ICIS)–Sentiment in the German economy brightened considerably in January on the back of companies’ more optimistic expectations for the months ahead, research institute Ifo said on Wednesday.

The Ifo Business Climate Index rose to 90.2 points in January, up from 88.6 points in December.

Ifo president, Clemens Fuest, said the German economy had started 2023 with more confidence although companies were “somewhat less satisfied” with their current situation.

Sentiment in Germany’s petrochemicals- and export-intensive manufacturing sectors continued to improve in January, said Fuest, and companies expect to ramp up production in the months ahead.

“Companies [in manufacturing] assessed their current situation as better. Their expectations for the coming six months were also noticeably brighter. Order volumes are declining but remain at a high level. Production is set to increase in the months ahead,” said Fuest.

In the also petrochemicals-intensive construction industry, however, sentiment remains in the doldrums, said Ifo, although expectations for the coming months picked up slightly.

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‘FRAGILE’ FUNDAMENTALS
Analysts at investment bank ING said the fourth consecutive monthly uptick in Ifo’s sentiment index was however based on “very fragile” fundamentals.

The analysts said Ifo’s January reading, however, added to the “inflow of optimistic” data at the start of 2023 for the German economy, citing the other key indicator for Germany’s released earlier in the month by research institute Zew, which also showed an improvement.

“While the drop in the current assessment component illustrates that the economy is definitely not out of the woods yet, expectations continued to improve,” they said.

“Lower wholesale gas prices and the reopening of the Chinese economy have boosted economic confidence. However, the fact that the German economy seems to have avoided the worst doesn’t automatically mean the outlook is rosy.”

As headwinds for the coming months, the analysts mentioned that the German economy – as well as the other members of the currency union eurozone – still has to digest the full impact of the interest rate hikes undertaken by the European Central Bank (ECB).

“Demand for mortgages has already started to drop and, as in previous hiking cycles, it didn’t take long before the demand for business loans also started to drop,” said ING.

“In short, the German economy will still be highly affected by last year’s crises throughout 2023.”

Front page picture: BASF’s chemicals facilities in Ludwigshafen, Germany
Source: Firn/imageBROKER/Shutterstock