According to the current ifo index, the business climate in Germany has only improved marginally. The imponderables of the pandemic continue to weigh heavily on companies. In addition, there are growing supply bottlenecks.
In Germany, business sentiment improved slightly in April, but the data from the Ifo Business Climate is not a real step forward: the index rose by 0.2 points compared to the previous month to 96.8 points, according to the Munich institute. After all, this is the highest value since June 2019. However, experts had expected a stronger increase to an average of 97.8 points. Nevertheless, the third rise in the leading indicator in a row is usually interpreted by economists as an economic turning point. The data also shows that the companies rated their current business situation better. The prospect of the coming six months, however, has clouded over.
Ifo Business Climate Index April 2021
The effect of the third wave
“The third wave of infections and bottlenecks in preliminary products are dampening the recovery of the German economy,” commented Ifo President Clemens Fuest. As in the past few weeks, the results vary depending on the sector. Things are still going very well for the industry, but optimistic expectations have been dampened. “45 percent of the companies reported bottlenecks in preliminary products – that is the highest figure since 1991,” emphasized Fuest. In manufacturing, however, the business climate improved to its highest level since May 2018. Capacity utilization increased significantly to 86.2 percent and is thus above the long-term average for the first time in almost two years. The industry is booming, but the bottlenecks in intermediate products such as semiconductors are the downside, said Ifo economic expert Klaus Wohlrabe. There is sand in the gears when it comes to procurement, across almost all industries.
Service sector worries
In the service sector, the mood clouded over again somewhat. The companies were less satisfied with their current situation. “Even the optimism that had recently emerged has disappeared again.” While the logistics sector is benefiting from the upswing in industry, the hospitality and tourism sectors in particular suffered from the lockdown. In the retail sector, the business climate picked up slightly – not least because of the better location at car dealerships, for example. With a view to the coming months, however, pessimism has noticeably increased again. According to the Ifo, the mood among companies also deteriorated in the construction industry.
Bottlenecks and delivery problems
“The catching-up process is stalling a bit,” commented Jens-Oliver Niklasch, economist at LBBW. Probably this has to do with the uncertain development of the pandemic and the response of politics to it – keyword “Easter rest”. Michael Holstein, chief economist at DZ Bank, said the current survey shows that the export-driven boom in German industry is continuing. “Due to the global demand for industrial goods, the bottleneck is noticeable in important intermediate products such as memory chips. It could take months to overcome the delivery problems, which is why the outlook is somewhat gloomy.” “The recovery should only gain real momentum when the lockdown is noticeably relaxed, which we expect from the end of May,” commented Jörg Kramer, chief economist at Commerzbank. Then consumers would probably dissolve part of the forced savings, which, according to our estimates, now amount to seven percent of their annual income.
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