China boosts German business optimism, but challenges ahead

A key measure of German business optimism rose in April for the seventh month in a row amid lower natural gas prices and the reopening of the Chinese economy after COVID-19 restrictions

A key measure of German business optimism rose in April for the seventh month in a row amid lower natural gas prices and the reopening of the Chinese economy after COVID-19 restrictions.

The Munich-based IFO institute’s confidence index went up to 93.6 from 93.2 in March. Analysts said Monday that the move was positive but did not erase the headwinds facing Europe’s largest economy as it struggles to avoid sliding into recession.

Consumers are still holding back due to rampant inflation and energy prices still are high, even after utilities found new sources of gas after Russia cut off most of its supply to Europe after the invasion of Ukraine.

“Looking beyond the first quarter and particularly looking into the second half of the year, the German economy will continue its flirtation with recession,” Carsten Brzeski, global head of macro at ING bank, said in an emailed analysis.

The International Monetary Fund forecasts a 0.1% decline in gross domestic product for Germany this year.

The end of drastic restrictions aimed at halting the spread of COVID-19 in China, a major market for German companies, has fueled “a short-lived industrial renaissance," Brzeski wrote.

He added that first-quarter economic output figures could land in positive territory when they are released Friday.

But once order backlogs are worked off, the rebound could run out of steam as the German economy faces long-term drag from the war in Ukraine and the transition away from fossil fuels toward renewable forms of energy.

The Ifo survey is based on responses from about 9,000 businesses across various business sectors.