German Business Outlook Stays Subdued After Government Falls
(Bloomberg) -- Germany’s business outlook slid in November, remaining subdued due to the collapse of the government and the threat of trade tariffs following Donald Trump’s re-election as US president.
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An expectations gauge by the Ifo institute and its measure of current conditions fell, pushing the overall index down to 85.7 from 86.5 a month ago. That’s worse than the 86 reading that economists had forecast.
“The German economy is floundering,” Ifo President Clemens Fuest said Monday in a statement. “Companies were somewhat skeptical again about the coming months.”
Europe’s biggest economy is facing a second straight year of contraction as long-standing struggles among its industrial and car giants are compounded by political turmoil and the danger that Trump’s return will rock global trade.
Bundesbank President Joachim Nagel has warned that Trump’s levies could cost Germany 1% of output and that, as a result, the economy could also shrink in 2025.
“That’s been a concern in German manufacturing for some time now,” Fuest told Bloomberg Television later Monday, calling readings from that sector “weak.”
“This month, the only bright spot comes from consumption,” he said.
Surveys by S&P Global last week showed German private-sector activity contracting at a quicker pace in November than in October, as the services index joined manufacturing below the 50 mark that separates expanding from shrinking output.
Third-quarter gross domestic product, which defied expectations of a recession, was also revised down on Friday. The statistics agency said a drop in exports held back growth that was driven by spending from consumers and the government.
The Bundesbank doesn’t hold out much hope for 2024. It predicts stagnation in the final three months before a mild recovery next year.
Elections scheduled for February may herald a change in policy. Calls are growing for Germany to loosen its limits on borrowing to help boost investment and overhaul crumbling infrastructure.
Indeed, there’s likely to be appetite among investors for additional German debt after the discipline the country has displayed in recent years.
A possible boost to growth could come from a reduction in corporate taxes. Fuest, though, reckons that alone wouldn’t significantly improve Germany’s fortunes.
“What we need is a more comprehensive agenda that would include over-regulation of the economy and include the supply of energy,” he said. “It would have to cover other areas in the economy, and particular labor supply. A lot of companies are concerned they will not find the workforce and that is why they don’t invest in Germany.”
--With assistance from Joel Rinneby, Kristian Siedenburg and Craig Stirling.
(Updates with more Fuest comments starting in sixth paragraph.)
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