Morale in German Businesses Drops on Concerns Over Growth

Morale in German businesses dipped unexpectedly during April showed a survey on Monday, with concerns over global growth prompting companies to pull back from their optimistic outlooks that were pegged to a strong start to the New Year for the biggest economy in Europe.

The Ifo economic institute based in Munich announced on Monday its index on business climate based upon its survey monthly of over 7,000 companies that inched downward in April to 106.6 from March’s 106.7.

Ifo said its reading was still far above the long-term survey average, but was also the fourth drop in the past five months and below a forecast by economists of 107.0.

The mood of the economy in Germany is still good, but no longer euphoric, said the Ifo lead economist citing concerns about the country’s weakening exports, traditionally the main driver of growth in Germany. The slowdown is linked to sluggishness in China and somewhat in the U.S.

The drop overall was driven by the deterioration in the overall sentiment in both the retail and wholesale sectors, while things in construction and manufacturing improved.

Recent data has painted a better picture of the economy in Germany with strong industrial output than was expected at the start of the year and exports becoming better during February.

This raised hopes for an economic upswing. Germany’s leading institutes on the economy predict the rate of growth for the quarter will double to over 0.6% during the first three months of 2016 compared to the previous quarter.

Carsten Brzeski an economist with ING Bank said the most recent reading has suggested big worries of a sharp slowdown globally were exaggerated, pointing to the resilience domestically in the German economy.

However, with a struggling manufacturing sector having problems gaining momentum and companies in Germany losing competitiveness, it was not clear if the new economic consumption based model of growth was sustainable, added the economist.

With strong private consumption and higher spending by the state having replaced the country’s exports as the big pillar of growth, the government is forecasting growth of 1.7% for 2016 and 1.5% for 2017.