Germany: Business confidence rises but remains in negative territory in February
Business confidence rose to 98.9 in February from January’s 96.0. Despite the uptick, the index remained below the 100-thresholdpointing to improving sentiment among businesses.
The headline print reflected an improvement in firms’ views of the current economic situation and less pessimism of the future economic situation. The improvement was led by a notable uptick in sentiment in the services sector, with optimism returning to the hospitality sector. The services sector was followed by the trade sector, with firms being much more satisfied with their current situation and their views on expectations brightened tangibly. Goods producing companies were also markedly more satisfied with the current situation, and their expectations turned more optimistic.
Clemens Fuest, president of the ifo Institute, commented:
“The German economy is betting on an end to the coronavirus crisis. However, the escalation of the crisis engulfing Ukraine remains a risk factor.”
Carsten Brzeski, global head of macro at ING, added:
“Inflation remains the largest risk for the German economy as it could undermine the rebound both from the supply and the demand side. Record high price expectations and record high producer price inflation suggest that the pass-through from higher energy and commodity prices to consumers is still in full swing. […] This, alongside the current developments in the Russia-Ukraine conflict, means uncertainty has increased significantly, and [the] Ifo index is not leading but rather backward-looking. We don’t want to speculate about the next steps in the Russia-Ukraine crisis, but it is clear that the new uncertainty will weigh on business sentiment, dent purchasing power if energy prices continue to increase, and could eventually also, temporarily, subdue business investment.