German Business Sentiment Strengthens Despite Banking Sector Turbulence

(RTTNews) - Germany's business confidence unexpectedly strengthened in March underpinned by robust improvement in expectations despite turbulence in the global banking sector, a closely watched survey suggested on Monday.

The business climate index rose to 93.3 in March from 91.1 in February, data from the Munich-based ifo institute showed. The score improved for the fifth consecutive month. The reading was forecast to fall to 91.0.

The improvement was driven primarily by business expectations. Companies also assessed their current situation as somewhat better.

The current situation indicator advanced more-than-expected to 95.4 from 93.9 a month ago. The expected level was 94.1.

At 91.2, the expectations index rose from 88.4 in the previous month and was also above economists' forecast of 88.3.

"Despite turbulence at some international banks, the German economy is stabilizing," Ifo President Clemens Fuest said.

The business climate index in manufacturing advanced substantially in March. Companies were more satisfied with their current business situation and pessimism almost disappeared from expectations.

In the service sector, the business climate continued its upswing. Current business situation improved and the expectations index hit its highest since February 2022. More service providers expected sales revenue to increase.

In trade, the business climate index rose slightly. The indices for both current business and expectations rose a little.

In construction, the business climate improved. This development was due to less pessimistic expectations. Moreover, construction companies assessed their current business as somewhat worse.

The survey suggested that the Germany is still benefiting from falling energy prices and easing supply problems and has yet to feel the full effects of tightening monetary conditions, Capital Economics economist Andrew Kenningham said. A recession may be averted in the first quarter but the economist said he suspects that the economy will contract again later this year due to weakness of real household incomes and the lagged effect of rising interest rates.

Bundesbank last week said the largest euro area economy is set to contract in the first quarter but the decline will be slower than the 0.4 percent fall seen in the final quarter of 2022. The second consecutive quarter of contraction suggests that the economy entered a technical recession.