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German Ifo Business Confidence Highest In 3 Months

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Germany’s business confidence improved more-than-expected in November to reach its highest level in three months from a twenty-nine month low in October, as companies’ pessimism regarding the coming months reduced sharply, survey results from the ifo Institute showed on Thursday.

The business confidence index rose to 86.3 in November from 84.5 in October, the Munich-based ifo said. The index was forecast to increase to 85.0.

In November, companies were somewhat less satisfied with their current business conditions, while pessimism regarding the coming months reduced sharply.

“The recession could prove less severe than many had expected,” Clemens Fuest, president of Ifo Institute, said.

The current conditions indicator dropped to 93.1 in November from 94.2 in October. Economists had forecast a reading of 93.8.

The index measuring business expectations increased from 75.9 to 80.0. Economists were looking for a score of 77.0.

Among sectors, the ifo business climate index for the manufacturing sector recovered somewhat in November. Manufacturers were considerably less pessimistic about the future, albeit they assessed their current situation as worse.

Data also showed that the business climate indicator for the service sector rose sharply after a slight gain in the previous month. Service providers were less pessimistic about the coming months, but unhappier with their current business.

Germany’s private sector activity continued to remain in contraction, as the manufacturing and services both reported sustained downturns in November, the latest purchasing managers’ survey by S&P Global showed on Wednesday.

Business morale in the trade sector showed some better conditions in November, thanks to their noticeably higher expectations.

Similarly, the index for construction rose to -21.6 from -24.0 amid an improvement in the current business conditions.

“Today’s Ifo index adds to recent glimmers of hope that the German economy might avoid a winter recession,” ING economist Carsten Brzeski said.

Hopes are built on several government stimulus packages, filled gas reserves, better and faster adaptations by businesses and households to reduce gas consumption, and the assumption that consumers will simply spend away the energy crisis.

“Currently, many official forecasts expect the German economy to return to average quarterly growth rates by mid-2023,” the ING economist said.

“We are more cautious and think that the series of structural changes and adjustments will keep the recovery subdued, with a high risk of a double dip.”

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