Investor confidence is plummeting, and this has cast a dark shadow on the future of Europe’s biggest economy.
This rapid drop in confidence is the latest sign that Germany’s long-recognized manufacturing sector, which has been the engine of the economy for many years, faces increasing uncertainty.
The latest data from the ZEW Institute, published on Tuesday, shows that concerns are growing.
The index of expectations, which is a measure of investor outlook, fell from 19,2 to just 3.6 at the end August.
The unexpected drop in the stock market far outstripped economists’ predictions, who had forecast a slight dip of 17.
The current conditions index also dropped to -84.5, a further indication of the negative mood.
The major players in the industrial sector are facing difficult decisions.
Intel Corp. announced recently a delay of two years in the planned project for its factory, which raised questions regarding Germany’s attractiveness as a hub of manufacturing.
Achim Wambach said in a press release that “the hope of a rapid economic turnaround has faded fast.”
The decline of Germany’s economic prospects, he said, is greater than that in the rest of the Eurozone. This adds to the list depressing events.
Investor confidence is not boosted by monetary policy
Recently, the European Central Bank lowered its borrowing rates for the second consecutive time.
On Wednesday, the US Federal Reserve will likely take steps similar to those taken by other central banks around the world.
According to Achim Wambach, President of ZEW, most respondents have factored in the decision on interest rates into their expectations, suggesting that it may not do much to change the mood.
After a year in which the economy contracted, many economists are now revising their predictions for this year. Many predict stagnation, or perhaps even a small decline.
Germany is facing a number of structural problems, as well as a weakening demand on international markets. The economy has also been suffering since the second half of last year, when an unexpected contraction in production highlighted Germany’s industrial vulnerability.
Consumer spending is still weak despite rising wages. This further weighs down the economy.
German auto giants are facing challenges
Manufacturing, which is a major driver for the German economy as a whole, was hit very hard.
Volkswagen AG is a giant in the automobile industry. It recently announced plans to dismantle an agreement with its workers that has been around for decades. They are even looking at closing production facilities domestically due to declining demand.
BMW had to lower its profit forecasts after it recalled 1.5 million cars due to brake problems.
These include demographic changes that are not in our favor, high energy prices, and the increasing competition coming from China.
Robin Winkler of Deutsche Bank, in a Bloomberg quote, stressed the seriousness of the current situation.
The current assessments of Covid-19 are almost as grave as when the crisis began in early 2020.
The optimistic outlook of earlier in the year is largely gone, he said, and the road ahead will be challenging.
There is little hope for immediate relief from the accumulating setbacks.
The ICD published the article German investor confidence drops further in September, as economic woes get worse.
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