Germany is in a recession that we believe will last until the first quarter of 2023. We see the shock in gas prices after Putin’s invasion of Ukraine and the subsequent drop in consumer confidence as the main factors. However, once the winter heating season ends, the German economy could return to recovery from spring 2023. This opinion is consistent with the results of today’s study of the prestigious economic institute Ifo. For the first time since May, the Ifo business sentiment index rose from 84.3 in October to 86.3 in November, beating Reuters analysts’ estimate of 85. And while the current conditions index continued to slide to 93.1 in November from 94.1 in October, the Ifo component of expectations jumped to 80 from 75.6, well above the consensus estimate of 77. This somewhat encouraging outlook is also reflected in other recent economic indicators such as the PMI and the ZEW Institute survey. Overall, there is a possibility that the reduction in German GDP will not be as large as we originally expected.

Manufacturing sentiment rose to -11.7 in November from -15.4 in October. While attitudes towards current conditions deteriorated even further, expectations improved markedly (but remained decidedly negative). According to Ifo, the flow of new orders continued to decline. However, uncertainty about the business outlook, while still high, has eased somewhat, with the exception of energy-intensive industries, where uncertainty has intensified. Business sentiment in the services sector rose to -5.4 in November from -8.5 in October. And while business views of their current situation have worsened further, their outlook for the coming months has improved. Business sentiment in the trading sector continued to improve, hitting a still very low -26.9 in November after -31.9 in October. Companies have seen a slight improvement in current conditions and their expectations have improved significantly.

Business sentiment in the construction sector improved to -21.6 in November from -24 in October. The current conditions index has risen significantly, although expectations remain grim.

* Mr. Salomon Fiedler is an economist at Berenberg Bank.