ING’s Carsten Brzeski warns that Germany’s long-awaited cyclical rebound has been dented after the Ifo index fell sharply in March, with expectations suffering their worst hit since the Russian invasion of Ukraine. He highlights soaring energy prices, the war in the Middle East and renewed uncertainty as key downside risks, although he still sees fiscal stimulus supporting Germany’s recovery prospects for now.

Ifo shock highlights downside growth risks

"The headline reading came in at 86.4, from 88.4 in February. While the current assessment component remained unchanged, expectations took the worst hit since the Russian invasion in Ukraine, dropping to 86.0, from 90.2 in February."

"Germany’s long-awaited cyclical upswing took a hit in March, as the war in the Middle East has blasted away optimism. This is at least what the just released Ifo index is telling us. Coming from the highest level since last summer, Germany’s most prominent leading indicator took a severe hit as the war in the Middle East, soaring energy prices, and new uncertainty dented previous optimism."

"That said, it would be premature to drift into outright pessimism. Let’s not forget that the fundamental drivers of Germany’s economic rebound this year are still there: fiscal stimulus of more than €200bn for defence and infrastructure this year alone remains a strong argument against premature doom-mongering."

"For now, the war in the Middle East is a risk for Germany's cyclical rebound but not (yet) enough to completely derail it, rather delay it."

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