German economy set for revival
The future isn't looking too optimistic just yet, but there are signs that Germany's economy might be on the right track. The service sector in particular seems to be adding some positive vibes, alongside improvements in industry. The Purchasing Managers' Index, focusing on the private sector, increased by 1.6 points to 52.2 points, according to S&P Global's monthly company survey. The German Chamber of Industry and Commerce (DIHK) is also feeling a bit more hopeful about the year ahead.
Surveying over 24,000 companies across various sectors and regions, DIHK changed its outlook from a negative one in February, where a 0.5% decline was expected in 2024. However, the German economy is still at risk of experiencing back-to-back years of shrinking growth for the first time in over 20 years. In 2023, the GDP contracted by 0.2%.
Martin Wansleben, DIHK's Managing Director, said, "The economy is not collapsing, but it's not growing either." He highlighted the construction sector and most industries as the most pessimistic. Despite some improvements across other sectors, investment levels are still below pre-pandemic levels. It's been 5 years now since we saw those levels. A turnaround is yet to appear. Wansleben mentioned structural challenges as the root cause, with domestic demand, high energy and raw material costs, and a shortage of skilled workers being cited as the main risks, alongside strained economic policies.
Bright spots: travel, trade fairs, civil engineering, and the chemical industry
Despite these challenges, there are glimmers of hope. Jupp Zenzen, DIHK's economic expert, emphasized improvements in the service sector, expecting a 1% rise in growth, particularly driven by private consumption. Inflation might even drop to 2.3% according to Zenzen. The travel industry and event organizers are booming, picking up the pieces left behind by the pandemic. Civil engineering is also in a good spot, benefiting from an increase in orders for energy infrastructure. The chemical industry is also doing better.
Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, mentioned the robust growth rates of the service sector in May. There was expansion for three months straight. Hamburg Commercial Bank sponsors the Purchasing Managers' Index. De la Rubia suggested that those forecasting continued weakness in the German economy might find themselves pleased with a surprise turnaround.
Stronger-than-anticipated industry barometer
The expectations of the industry barometer were surpassed. Reuters' survey of economists projected a lesser increase. Business in the service sector exceeded that of April, and industrial production stabilized. The service sector indicator rose by 0.7 points to 53.9 points. Despite the 2.9 points rise, the industry sector barometer remained under the growth threshold of 50 points at 45.4 points. De la Rubia sees this as a possible sign of improvement in industry.
The Bundesbank also predicts that the German economy will regain its footing and continue on a growth path in the spring. DIHK's predictions suggest a slight rise in economic output in the second quarter of 2024, with GDP growing by 0.2% between January and March compared to the prior quarter. The Bundesbank observed a contraction of 0.5% at the end of 2023. 1
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Source: www.ntv.de
