For the seventh month in a row, Germany has recorded an improvement in the prospects for investment activity, which gives reason to hope that the worst times for the largest European economic system are in the past and the future will be a space for the implementation of a more favorable scenario.
Berlin has been struggling with economic problems for more than a year. The current state of affairs cannot be called unambiguously favorable and such that does not contain negative factors, but the same symbolic light at the end of the tunnel is already visible.
The ZEW Institute’s expectations index rose to 19.9 in February. In this case, an extremely important circumstance is that last month the specified figure was equal to 15.2. Also, optimism about the future of the German economy received a more or less convincing argument in the form of the fact that the ZEW Institute’s expectations index in February showed growth exceeding the preliminary expectations of experts. Analysts predicted that the corresponding indicator in the current month would be fixed at 17.3.
The President of ZEW, Achim Wambach, officially stated the improvement in economic expectations for Germany. According to him, more than two-thirds of respondents assume that within the next six months, the European Central Bank will decide to lower interest rates amid a slowdown in the inflation process. He also noted that almost three-quarters of respondents expect monetary policy easing in the United States in the foreseeable future.
Last year, Germany became the only G7 economy to show contraction. This result is due to the downturn in the manufacturing sector. The mentioned segment of the German economic system is actually its main driving force. The downturn in the manufacturing sector is the result of the impact of two factors such as the effects of an inflationary shock and a decrease in external demand.
Despite the improvement in the prospects for investment activity in Germany, more and more analysts, including experts from Deutsche Bank and Commerzbank, predict that production in this country will continue to show negative dynamics in the current year. The beginning of 2024 to some extent confirms these expectations, for which the dominant mood is pessimism. This state of affairs in the industrial sector is a cause for disappointment. The future of the relevant segment of the German economic system is what can be conditionally described as a dubious prospect.
The negative state of affairs in the manufacturing sector is not the only problem for Berlin. Currently, the turmoil in the German commercial real estate market is also being recorded. In the context of this reality, some local banks are under threat. Moreover, internal strife in the German government creates barriers to reform.
Preliminary aggregate expectations for the German economy foresee no growth in gross domestic product from January to March. It is worth noting that the previous version of the corresponding forecast contained the prospect of an increase in the mentioned indicator by 0.1%.
The Bundesbank is hugely gloomy about the future of the German economy. Experts from the central bank of Germany say that stagnation in the first quarter of the current year is the best scenario. If the real situation turns out to be even worse, Berlin will face the first recession after the coronavirus pandemic.
At the same time, expectations of a monetary easing by the European Central Bank in the foreseeable future are, for some observers, a reason for optimism about the German economy.
Wolfgang Schmidt, a close aide to Chancellor Olaf Scholz, says that the first signs of an economic recovery due to consumer activity are currently being recorded. According to him, further tailwinds will come from initiatives to slash red tape at the regional and national levels.
On Tuesday, January 13, at an event organized by the Berlin business lobby group, Wolfgang Schmidt said that there is no recession in Germany. According to him, currently, there are no signs of the corresponding state of the economic system, among which, for example, a high unemployment rate. Wolfgang Schmidt said that the situation in the German labor market is stable, separately noting the trend of growth in real wages.
As we have reported earlier, Germany to Help Its Tech Industry to Compete With Silicon Valley.
