The German Institute for Economic Research (DIW Berlin) registered a marginal improvement in its economic barometer in June. The value rose from 94.8 points in May to 96.1 points. This development signals an approximation to the 100-point threshold, which typically reflects average growth in the German economy. The slight easing of the conflict between the United States and Iran contributed to a minor brightening of the economic outlook. Despite this partial détente, geopolitical uncertainty remains at an elevated level.
The global economy's recovery from the effects of the energy shock and persistent disruptions in supply chains, including fertilisers, is expected to take more time. Inflation remains at an elevated level, which continues to significantly curb the cautious upturn of the German economy predicted in winter. The economy is currently benefiting not only from the slight easing in the geopolitical environment but also from the stimulus packages implemented by the Federal Government. These measures had already contributed to solid GDP growth in the first quarter of the current year.
Geraldine Dany-Knedlik, head of economic forecasting at DIW, stated that while the economy was calming down, it was not yet showing an upturn. Significant momentum is not expected until the end of the year. This forecast is subject to the proviso that there is no renewed escalation of geopolitical risks and that fiscal impulses genuinely lead to investment. Industry remains a structural problem area for the German economy, especially since the outbreak of the Iran war, which has sustainably dampened initial confidence. Industrial production remains at a low level, and the order situation is fragile.
- —The order backlog shows a slight increase.
- —New orders in manufacturing recently fell by 3.8% compared to the previous month, primarily due to declining foreign orders.
- —The Purchasing Managers' Index for industry is around 50 points, which marks the boundary between growth and contraction.
Structural burdens include moderate global economic growth and the decoupling of German exports from global trade, influenced by protectionist measures and increased competition, particularly from China. Should the situation in the Middle East stabilise, government demand impulses, especially in the defence sector, could trigger gradual upward momentum in the coming months. A comprehensive and broadly based recovery is not currently foreseeable, according to DIW economic expert Laura Pagenhardt.
The services sector also appears subdued. Retail sales have been weak since the beginning of the year, as consumer pessimism remains dominant. The temporary rise in fuel prices, the low dynamism of the German economy, and the subdued labour market situation negatively affect sentiment. At least consumer sentiment is showing a slight recovery after a decline in the spring months. Leading indicators present a mixed picture: the GfK Consumer Climate recovered slightly, while the Purchasing Managers' Index for services continued to decline. Therefore, a stronger impulse from the services sector for the German economy is only gradually to be expected.
Economic expert Guido Baldi concludes that the economic situation in Germany remains challenging despite the calming of the situation in the Middle East. Should geopolitical conflicts and protectionist measures by important trading partners continue to affect the German economy, a broad and sustained upturn will depend even more on national investments and reforms.
