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German business sentiment improves in November – Ifo

German business morale improved for a third straight month in November, the Ifo institute said on Friday after its latest survey, adding there had been no impact “for the time being” from a court ruling that has torn a hole in government finances.

The institute said its business climate index stood at 87.3, slightly below the 87.5 forecast by analysts in a Reuters poll.

Germany’s constitutional court ruled last week the government’s decision to re-allocate 60 billion euros ($65 billion) of unused debt from the pandemic era to its climate and transformation fund was unconstitutional, blowing a hole in the federal budget.

Germany’s steel sector on Thursday voiced concerns shared by many firms about what will happen to funds promised to help the industrial transformation.

Ifo’s head of surveys, Klaus Wohlrabe, told Reuters the court ruling had had no visible effect on its survey of some 9,000 company executives “for the time being”, with a quarter of the responses coming after it.

Uncertainty had increased somewhat, but a clearer picture may only emerge in the December survey, added Wohlrabe.

Companies were somewhat more satisfied in November than in the previous month with their current business situation, with the sub-index rising to 89.4 from 89.2 in October.

The expectations sub-index also improved to 85.2 from an upwardly revised 84.8 the month before.

The mood in industry, especially energy-intensive sectors such as paper, plastics and rubber production, was remarkably brighter, which Wohlrabe attributed to an electricity pricesupport package for industry recently agreed by the government.

The data signal growth in the fourth quarter, even though the Germany economy still lacks momentum, added Wohlrabe.

Analysts were more pessimistic, forecasting that the economy shrank in the current quarter, a view shared by the Bundesbank.

That would mean the country is in a recession – commonly defined as two successive quarters of contraction – afterthe federal statistics office on Friday confirmed the economy shrank 0.1% in the third quarter.

“The slightly better ifo business climate index should not hide the fact that Germany is in recession,” said VP Bank Chief Economist Thomas Gitzel.

Potential austerity measures resulting from the court’s budget decision “are not exactly contributing to greater confidence in future economic development,” added Gitzel.

An economy ministry source told Reuters last week that the court ruling could cause growth in 2024 to be about half a percentage point lower.

The ministry last month predicted the economy would shrink by 0.4% this year and grow by 1.3% next year.

“Companies simply have too much to digest when you think of the recent global interest rate turnaround or the uncertainty surrounding the German government’s energy and budget policy,” said Commerzbank chief economist Joerg Kraemer.
Source: Reuters (Reporting by Miranda Murray and Rene Wagner, Editing by Linda Pasquini, Mark Potter and Toby Chopra)

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