German manufacturing is recovering after several years of stagnation
The German IFO index, which measures the business climate, rose to 86.7 points in March. This momentum points to an optimistic mood in the market. One of the drivers of this growth is production in Germany, which is recovering. The expectation of large government funding programmes is also contributing to the positive sentiment.
The IFO index is an indicator of business sentiment. In March, it reached its highest level in 8 months. The index reflects positive changes in the current economic situation and improved prospects.
Overview of trends by sector
Clemens Füst, head of the IFO Institute, noted that companies are optimistic about their own successes and general market trends. Moreover, recovery is expected in various sectors:
1. Representatives of the manufacturing industry have become less cautious. Companies view their position as favourable. At the same time, the volume of orders decreased slightly.
2. The services sector showed an increase. Representatives of the architecture and engineering sectors are most optimistic.
3. In trade, companies’ expectations have strengthened. Traders note greater stability regarding the prospects and an increase in sales volumes.
4. The construction sector is more positive about its current situation than last year. At the same time, there is scepticism among industry representatives. This is due to rising material and labour costs.
One good sign for the market is the S&P Global PMI Purchasing Managers’ Index. According to the latest data, overall business activity in Germany is growing at the fastest pace in 10 months. The main driver of this growth is the recovery in the manufacturing sector. This sector is showing the best rate of recovery in output over the past three years. It is worth noting that the momentum in the sector is the first sustained growth since the beginning of 2022. Important factors are rising domestic demand and strong restocking by customers.
Factors in stimulating production
German companies are expanding production for the first time in two years. Businesses are finally getting out of the waiting mode and starting to act. An important factor in stimulating production is the government’s infrastructure and defence investment plan. It earmarks EUR 500 billion to support strategically important sectors. Businesses see this investment as a sign of a sustainable recovery
Among the factors limiting output are:
– increased tariffs by the US;
– weak recovery of the service sector.
The index of business activity in the services sector fell to show the weakest level of activity for 4 months. The number of new businesses in the sector has declined and existing companies are stagnating. Service providers are struggling with high costs. They are trying to offset costs by raising prices.
Despite the challenges, the sector is optimistic about the short-term outlook. Overall, business sentiment in the German market is improving. This points to a recovery in economic activity.
