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German business sentiment rises in March, Ifo says

Published 03/22/2024, 05:26 AM
Updated 03/22/2024, 06:20 AM
© Reuters. FILE PHOTO: Construction sites are photographed in Frankfurt, Germany, July 19, 2023. REUTERS/Kai Pfaffenbach/File Photo

By Maria Martinez

BERLIN (Reuters) -German business morale improved in March and beat expectations, a survey showed on Friday, though probably not enough to prevent Europe's biggest economy from slipping into another recession.

The Ifo institute said its business climate index stood at 87.8 compared with a reading of 86.0 forecast by analysts in a Reuters poll.

"The German economy glimpses light on the horizon," said Ifo president Clemens Fuest.

Companies' expectations turned much less pessimistic in March and assessments of the current business situation also improved, the survey showed.

"The strong gain in the Ifo business climate gives us hope," said Joerg Kraemer, chief economist at Commerzbank (ETR:CBKG).

He said the dampening effect of massive increases in interest rates and energy prices is beginning to fade.

"However, an end to the recession in the summer half-year should not be confused with a genuine upturn," Kraemer warned.

Germany is broadly expected to enter another technical recession in the first quarter of this year, after its economy shrank by 0.3% in the final quarter of last year.

Germany's economic downturn eased slightly in March as business activity in the country’s service sector came close to stabilising, the HCOB German Flash Composite Purchasing Managers' Index(PMI), compiled by S&P Global, showed on Thursday.

"We think the pick-up in March is the beginning of a more sustained rise in both surveys," said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, in reference to the PMI and the Ifo survey.

ING's global head of macro Carsten Brzeski cautioned: "Before popping the corks, let's not forget that today's reading is still far lower than levels seen last summer."

Germany's gross domestic product (GDP) shrank by 0.3% in 2023, making it the world's worst performing major economy.

© Reuters. FILE PHOTO: Construction sites are photographed in Frankfurt, Germany, July 19, 2023. REUTERS/Kai Pfaffenbach/File Photo

The government expects the economy to grow 0.2% this year as weak global demand, geopolitical uncertainty and persistently high inflation dent hopes for a swift rebound.

"Even if sentiment indicators have improved somewhat, any recovery of the German economy looks set to be weak this year," Brzeski said.

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