Easing supply bottlenecks give German business 'glimmer of hope'

Company executives are 'more upbeat' about their business outlook

Shoppers fill Cologne's main shopping street Hohe Strasse, as German business morale improves. Picture: Reuters/Wolfgang Rattay/File Photo

German business morale improved in January for the first time in seven months as easing supply bottlenecks brightened the outlook for manufacturers in Europe's largest economy, promising a strong recovery from the coronavirus pandemic in spring.

The Ifo institute said its business climate index rose to 95.7 from an upwardly revised 94.8 in December. A Reuters poll of analysts had pointed to a January reading of 94.7.

"The German economy is starting the new year with a glimmer of hope," said Ifo president Clemens Fuest.

Company executives were considerably more upbeat about their business outlook while their assessment of the current situation was a bit less optimistic, added Mr Fuest.

In manufacturing, supply bottlenecks in intermediate products and raw materials eased a little which helped to lift both assessments of the current business situation and business expectations for the next six months, said Ifo.

Services sector

Business morale also improved in the services sector with the tourism industry looking forward to a promising summer holiday season, the survey showed.

Still, service providers were less satisfied with their current situation due to Covid-19 restrictions for unvaccinated citizens who still account for roughly a quarter of the German population.

Ifo economist Klaus Wohlrabe told Reuters the improvement in business sentiment was encouraging, but it was still too early to talk about an economic turnaround.

Wohlrabe also warned that inflation was unlikely to ease in the coming months as every second company across industry, trade, and retail suggested in the survey it was planning further price increases.

The Ifo figures chimed with Markit's purchasing manager index that also showed a relaxation in supply chains which helped push up activity in the manufacturing sector to a five-month high in January.

'Out of winter slump'

"The German economy seems to be coming out of the winter slump," said VP Bank analyst Thomas Gitzel.

However, Mr Gitzel cautioned that an escalation in the conflict with Russia over Ukraine could weigh on German business morale.

The DIHK Chamber of Industry and Commerce also pointed to the risk that the Omicron coronavirus variant could trigger more strict lockdown measures in China and result in more supply bottlenecks.

Most analysts expect the economy to stagnate or even shrink in the first three months of the year, following a drop of up to 1.0% in the final three months of 2021.

• Reuters