The economic barometer of the German Institute for Economic Research (DIW Berlin) recorded a rise to 96.4 points in August, after experiencing a decline in July. This development brings the barometer closer to the neutral mark of 100 points, which indicates average growth of the German economy. The Chief Economist of the DIW, Geraldine Dany-Knedlik, noted that the fluctuating barometer reflects the overall unstable economic picture, but a slow stabilisation of the German economy is discernible.
Several factors speak for this cautious positive development. Exports recently reached a new peak, with demand for German goods from other European countries proving particularly robust. Sentiment indicators also signal restrained optimism. In the second quarter of the year, economic output recorded an unexpectedly strong increase of 0.3 per cent.
Persisting Burdening Factors and Geopolitical Risks
Despite the positive signals, significant burdening factors remain. Geopolitical risks, especially tensions in the Persian Gulf and the threat of an economic war between the USA and Iran, continue to significantly influence the global environment. The restricted passage through the Strait of Hormuz and the resulting rise in oil prices contribute to higher energy costs and consumer prices. Added to this are the consequences of the hot summer, which led to low water levels on German waterways, thus restricting transport volumes and making raw material transport more expensive.
Ms Dany-Knedlik summarised that the German economy is presenting itself more stably this year than expected, but is still on an uncertain footing. Industry, however, seems to have overcome its prolonged slump, which is reflected in strong order intake, particularly for large domestic orders. This development, probably supported by increasing defence spending, is leading to a stabilisation of real production figures. Business sentiment brightened in August, with ifo surveys showing an improved assessment of the current business situation.
- —Export business is a significant stabiliser of economic performance.
- —Strong public investment contributes to current support.
- —Industry is experiencing increased confidence.
- —Private investment, higher productivity, and strengthening the economic location are crucial for sustainable development.
The services sector is also showing cautious optimism, particularly in business-related areas. Consumer-related services, however, are subdued due to continued restrained consumer sentiment and ongoing uncertainty, increased inflation, and weak labour market prospects. Employment has recently declined again. A sustainable recovery of the services sector is expected once the economic upturn noticeably gains momentum and solidifies.
