Rise in German Ifo reading not "reason to start partying" - ING

(Alliance News) - While the latest economic sentiment reading from Germany was promising, "recession risk" still hangs over the world's largest economy, analysts at ING commented.

Milder weather and fiscal stimulus have recently bolstered the German economy's resilience.

Business sentiment in Germany improved in February, according to the latest data on Wednesday. The ifo business climate index rose to 91.1 points in February from 90.1 in January.

"Expectations in particular were brighter. However, assessments of the current situation were slightly less good. The German economy is gradually working its way out of a period of weakness," ifo said.

In the manufacturing sector, the index rose to its highest level since May last year, due to businesses' improved expectations. Manufacturers saw their current business as "a little worse", however, ifo said, as they received fewer new orders.

In the services sector, the index improved for the fifth consecutive month, with confidence for the coming months continuing to grow.

The trade and construction sectors also increased, but construction companies remain pessimistic.

However, the less forward-looking current situation index fell to 93.9 points from 94.1.

"Today's Ifo index reading is good news and fits into a picture of gradually improving confidence. At the same time, however, there is no reason to start partying. The second consecutive drop in current assessments suggests that the economy could see another quarter of economic contraction," ING added.

The ifo reading follows a period of resilience for the German economy.

"The German economy has been more resilient despite a long series of crises in 2022, which threatened to push it into a deep recession," ING added.

"The reason for this resilience is not so much the structure of the economy but the mild weather and a simple policy recipe that the German government has successfully used and perfected over the past 15 years but regularly criticises others when they try it: fiscal stimulus."

Despite recent progress, the German economy is "miles away from staging a strong rebound", according to ING.

By Eric Cunha, Alliance News news editor

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