Germany’s Economic Outlook Dims

The German economy has been on a roller coaster over the last little while, at least that’s the sentiment you’d get when listening to the media. The latest comes from a report about the country’s business confidence index.

The index fell to 105.7 points in its third consecutive monthly decline. It was also the sharpest drop the index has seen since October 2014.

Is the sky falling?

“The majority of companies were pessimistic about their business outlook for the first time in over six months,” said Ifo, with manufacturers in particular voicing deep concerns.

“Manufacturers’ business expectations declined steeply, marking their largest downswing since November 2008,” Ifo said. “With production levels falling at the end of 2015, manufacturers fear that the downturn will continue.”

Domestic and Eurozone demand for German-made goods also fell, which could be a sign that Germany’s powerful export business is finally noticing the global concerns that are causing turbulence in international markets.

“Persistent volatility on financial markets and geopolitical risks could weigh on exports and trigger a less favorable wait-and-see mode among German companies,” said UniCredit economist Andreas Rees.

Is this enough to be cause for major concern, however? The short answer is no. Well, of course, things aren’t all sunshine and lollipops in the German economy. The country is still feeling the negative influence of the Eurozone economy as a whole, something it’s been dragging along with it to economic recovery kicking and screaming.

But a country’s economy isn’t dependent on confidence indexes.

Cause for hope

“With oil prices and inflation being down, private consumption should grow markedly, also reflecting solid employment and wage growth. Also, we expect that public consumption continues to provide a stimulus due to more spending on refugees,” said Natixis economist Johannes Gareis.