Germany’s business outlook improved for a third month in November, pointing to an impending recovery for an economy that is probably in a recession and beset by a budget crisis.
The Ifo institute’s gauge of expectations rose to a six-month high of 85.2, less than the 85.8 median estimate in a Bloomberg survey. Its index of the business climate index also rose.
“Sentiment among German companies has improved slightly,” Ifo President Clemens Fuest said in a statement on Friday. “The German economy is stabilizing, albeit at a low level.”
The outcome is a bright spot at a bleak moment for a country enduring both political turmoil and feeble expansion. It has struggled to recover from its energy-induced downturn last winter, and is now experiencing the mounting impact of higher borrowing costs. Germany is the only major economy predicted by the International Monetary Fund to contract this year.
The Ifo result followed a separate report on Friday confirming that gross domestic product fell 0.1% in the third quarter from the prior three months, weighed down by a 0.3% drop in consumer spending.
High energy prices and weak global growth continue to pose major headwinds to Germany’s outsized manufacturing base. Several big industrial firms have started cutting costs, and chemical maker BASF SE plans to reduce investment by almost 15% over the next four years.
Business surveys published Thursday highlighted “considerable weakness” in the private sector, though easing conditions point to a return to growth for next year.
High interest rates continue to weigh strongly on demand too, with the full impact on the economy yet to come. An easing of monetary conditions shouldn’t be expected anytime soon, despite the dramatic inflation slowdown to 2.9% in October, according to the European Central Bank.
Officials including Bundesbank President Joachim Nagel have even said that another rate hike might be necessary to return consumer-prices growth to the 2% target, pushing back against market bets on a cut as soon as April.
Last week’s constitutional court ruling is a further curve ball. Bloomberg Economics estimates that the economy may grow next year by less than half the pace it could otherwise have achieved as the government reacts to the judgment.
--With assistance from Joel Rinneby, Kristian Siedenburg and Alexander Weber.
(Updates with Ifo index starting in first paragraph)
