Business climate and consumer confidence indices remained stable at a low level in February, highlighting Germany's limited economic impulse in Q1. According to our forecasts, GDP growth should be zero, after a contraction of 0.3% q/q in Q4: growth without momentum (for the time being) but also without a carryover effect (-0.2% after Q4 2023).
The ifo Business Climate Index, which was almost stable in February at 85.5, shows no sign of recovery, with relative stability of the “current situation" and "expectations" components. This is in line with demand, which remains low, both in terms of new orders in industry (5% lower on average over the last six months than a year ago) and in terms of consumer confidence (-29 in March according to the GfK index, compared to a historical average of 6).
The loss of momentum in new vehicle registrations, which are experiencing a sharp slowdown (2.3% y/y over the last six months compared to +16% six months earlier), is an aggravating factor, at least partly attributable to the end of fiscal support for electric vehicles. Against this backdrop, the fall in inflation did not generate any improvement in consumer confidence: this latter was even lower in February-March than in the previous nine months, even though inflation (harmonised index) fell to 2.7% y/y in February 2024 (it was still 6.4% y/y last August). While this disinflation is mainly due to the fall in energy prices, core inflation also fell between August 2023 (6.3% y/y) and January 2024 (3.4%), even though it has stabilised over the past three months. At the same time, producer prices are falling (-8.6% y/y in December 2023), supporting corporate margins (40.7% of GVA on average over the first three quarters of 2023).
While the German economy created 207,000 jobs in 2023 despite negative economic growth (-0.2%), it seems that the momentum of the labour market has eventually slowed too: the ifo Employment Barometer has fallen over the past months, standing at 95 in February, three points below its historical average. At the same time, while inflation in recent months has continued to weigh on consumer confidence, households are not feeling either any increase in purchasing power, even though wages rose by 3.9% y/y in Q4 2023.
Article completed on 29/02/2024
