Germany: Cyclical resilience versus structural risks – ING

ING’s Carsten Brzeski highlights that Germany’s IFO index has risen for five consecutive months, pointing to a cyclical rebound and unexpected resilience in the German economy. He notes that fiscal stimulus and recovering order books support activity, but warns that multiple downside risks and political uncertainty mean this is not yet a structural recovery. ING expects German GDP growth around 1% this year.

IFO-led rebound faces structural hurdles

"Almost secretly, the German economy has developed unexpected resilience, with its leading indicator, the Ifo index, now up for the fifth consecutive month. In September, the Ifo index stood at 89.9, up from 88.8 in August, and is now at its highest level in more than a year. And you actually start wondering, “why?”."

"At the same time, though, order books have started to recover in recent months, pointing to some positive momentum in industry. And the billions of euros from the government’s fiscal stimulus on defence and infrastructure have started to trickle down into the economy."

"Looking ahead, there are clear risks posed to the German outlook: the war in the Middle East, which it seems could be slowly turning into a forever war, oil prices remaining at elevated levels, as well as the likely upcoming shock of higher gas prices in the next heating season and renewed trade tensions."

"While there are still clear downside risks to the short-term outlook, the strong first half of the year alone has prepared the economy for its best growth performance since 2022. We currently expect GDP growth of around 1% this year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)