German confidence rebounds as analysts warn against hubris
German business confidence has hit a two-year high, the Ifo economic institute said yesterday, suggesting the country had shaken off post-Brexit blues, but analysts warned of a possible slowdown ahead.
The Munich institute’s headline business confidence index hit 110.5 points in October, up one point from the September reading of 109.5, and the highest level since April 2014. A plunge in the index over July and August was blamed by observers on Britain’s June 23 vote to quit the EU, but a spring had returned to German businesses’ step by September.
“The upturn in the German economy is gathering impetus,” Ifo president Clemens Fuest said in a statement. September’s surprise confidence rebound had prompted Fuest to predict a “golden autumn” for Europe’s largest economy. In the event, business people’s mood in October beat the forecasts of analysts surveyed by Factset, who had predicted the indicator would remain flat. Sub-indexes measuring businesses’ opinion of the current economic situation and the outlook for the coming six months both rose. Expectations saw an especially strong surge, reaching 106.1 points-an increase of 1.6 points over September’s figure. Both the manufacturing and construction sectors were confident about the future, with building firms’ expectations hitting a new record high. Retailers’ mood was largely unchanged from September, while wholesalers’ view of both the current climate and the coming months darkened slightly. Tuesday’s data comes on top of strong Monday readings in the purchasing managers’ index (PMI) — a survey of activity in private companies-in Germany and the whole eurozone. On the back of October’s PMI and comforting industrial production data for August, the Ifo reading “suggests that the German economy continued to perform well in the second half of 2016,” Jennifer McKeown of Capital Economics said. But she pointed to a likely slight slowing of growth in Europe’s economic powerhouse in 2017, as inflation begins to weigh on consumer spending.
“Leading indicators have swung back onto an upwards trend,” agreed Stefan Kipar of BayernLB bank, although “it’s too soon to sound the final allclear on the economy”. Kipar pointed to a constitutional referendum in Italy and the US presidential election in the next two months as “potential pitfalls” for confidence, adding that the true impact of Brexit may come when Britain launches its two-year divorce negotiation period, expected by the end of March next year. — AFP