Germany’s Investment Expectations Drop Considerably
Companies in Germany have significantly reduced their investment plans, according to the ifo Institute’s Business Survey. The ifo investment expectations for the current year fell to 2.2 points in November, down from 14.7 points in March. “The investment climate has deteriorated noticeably. This is the result of higher financing costs, weak demand, and uncertainty regarding economic policy,” says Lara Zarges, economic expert at the ifo Institute. Companies are also cautious about the coming year; with a balance of 1.2 points, the ifo investment expectations are actually slightly lower than this year.
Companies in trade are the most pessimistic: more and more of them want to cut their investment expenditure. For the current year, investment expectations fell from plus 3.7 points to minus 3.5 points, plunging to minus 14.6 points for 2024. Service providers have also slashed their plans for the current year, with investment expectations dropping from plus 13.6 points to plus 1.0 points. In the year ahead, they intend to invest only slightly more than this year, with a balance of plus 2.3 points.
Companies in manufacturing are the most optimistic. The majority of companies intend to invest slightly more this year and next. However, manufacturers have significantly cut back their plans for this year: the balance fell from 21.4 points in March to 6.8 points in November; in other words, they still want to invest more, but not quite as much as originally planned. Energy-intensive industries in particular want to invest less. Their balance fell from plus 9.1 points to minus 9.2 points. The correction is strongest in the chemical industry, where companies lowered expectations from their level in the spring of plus 13.9 points to minus 15.6 points. In non-energy-intensive industries, expectations for the current year dropped from 22.3 points in March to 12.6 points in November. In the automotive industry, manufacturers are sticking to their original plans and intend to significantly increase their investment expenditure: the balance remained almost unchanged at plus 34.4 points.
For the coming year, investment expectations in manufacturing are largely stable at 6.6 points. There are signs of a slight improvement in energy-intensive industries, where investment expectations are at plus 3.7 points. Manufacturers of chemical products in particular are again planning to invest more than in the current year. In non-energy-intensive manufacturing, however, slightly fewer companies intend to increase their investments compared to the previous year; the balance here fell to 11.2 points. Automotive manufacturers are once again planning major increases in investment expenditure. Their investment expectations for 2024 are at 34.0 points.
The points for the ifo investment expectations indicate the percentage of companies that intend to increase their investments on balance. The balance is obtained by subtracting the percentage of companies that want to reduce their investments from the percentage of those that want to increase their investments. If all the companies surveyed intended to increase their investments, the balance would be plus 100 points. If they all wanted to reduce their investments, it would be minus 100. The ifo Institute does not ask about the amount of planned investments.
