Germany’s manufacturing sentiment worsens in August – Ifo

MADRID (ICIS)–Sentiment among Germany’s petrochemicals-intensive manufacturing sectors worsened in August to its lowest level since February, research institute Ifo said on Monday.

Sentiment among construction companies remained stable at low levels, while overall sentiment deteriorated as the German economy is “increasingly” falling into crisis, said the analysts.

“In manufacturing, the index fell considerably. Companies were significantly less satisfied with the current business situation. Expectations fell to the lowest level since February,” said Ifo.

“[Manufacturing] companies once again reported declining order backlogs. The situation for investment goods manufacturers, in particular, is difficult.”

Sentiment among petrochemicals-intensive construction companies remained stable but low due to, on the one hand, companies being slightly more satisfied with the current business situation but, on the other, reporting declining expectations about future business conditions.

The overall Ifo’s Business Climate Index fell from 87.0 points in July to 86.6 points in August.

“Companies assessed their current situation as worse. In addition, expectations were more pessimistic. The German economy is increasingly falling into crisis,” said Ifo.

Earlier in August, Ifo reported that sentiment among chemicals companies is also falling, with operating rates declining further.

‘MARGINALLY’ GOOD NEWS
Analysts at Oxford Economics said the fall in the Ifo Business Climate Index came as no surprise but added it could be seen as a positive after a string of negative indicators in past weeks, not least last week’s flash manufacturing PMI index for August, which showed Germany and eurozone’s manufacturing still in contraction territory.

The downturn in Germany’s manufacturing sector, the largest in the eurozone, weighed greatly on the index.

“Although this [Ifo Business Climate Index] marks the fourth consecutive decline after the index peaked in April, it is marginally good news as other surveys had pointed to a sharper deterioration,” said Oxford Economics on Monday.

“We think it will take Germany’s manufacturing sector until end of this year to emerge from the economic slump but the deterioration in the services sector highlights the broad weakness in the German economy.”

The analysts went on to say the road ahead for Germany’s economic recovery will be a “bumpy” one, adding they still expect the economy to expand in the third quarter, although “cannot exclude” a contraction at this point.

However, the analysts said they are more upbeat about the coming quarter, with a recovery potentially taking place towards the end of 2024 in Germany’s economy after the shock suffered in the past two years related to the energy crisis and high interest rates.

“We maintain that a recovery will ensue towards the end of this year on the back of a turning industrial cycle and easing financial conditions,” concluded Ifo.

“Last week’s data on negotiated wage growth and our expectations of falling inflation data for this week, pave the way for the ECB [European Central Bank] to cut rates twice this year followed by a series of cuts next year.”

Front page picture: Chemical plants in Moers, Germany
Source: Jochen Tack/imageBROKER/Shutterstock