It is the second consecutive month that the confidence index falls, while it has only improved since September last year. And this was logical, thinks De Jong. “Energy prices have gone down since September,” he explains. “And they’re certainly not rising now, so if German business confidence is falling so sharply it’s apparently due to something else.”
“The fact that German business confidence is falling sharply is apparently due to something else”
According to De Jong, the drop in confidence indicates a “significant weakness” in the German economy. And that lies in a number of things, he knows him. “You have to realize that Germany has an economy where industry is relatively large, and that it is quite cyclical,” De Jong continues. “During the pandemic, many businesses have had trouble getting the materials they need, so when these logistical disruptions are over, businesses have probably over-ordered.”
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As a result, the stocks of the companies grew, which are still used for production today. Therefore, the demand for manufacturing materials is decreasing. “This is a negative factor,” says De Jong.
Furthermore, he believes that the role (abstained) of China should not be underestimated. Especially since the Chinese economy was expected to recover strongly this year, which, according to De Jong, ‘clearly’ has not yet happened. “And as a third factor it can be clearly seen that the energy-intensive industry in Germany – which is very large – took a hit last year due to rising energy prices,” says De Jong. “But now that those prices are down again, we don’t see any recovery.”
Permanently
According to De Jong, therefore, it is starting to seem that Germany has definitely lost some of the production, and he calls it rather negative. Certainly also because he still says the saying ‘If Germany sneezes, Holland has a cold’. “In the Netherlands you can see that the sector is also having a difficult time, business confidence is also weakening there,” continues De Jong. ‘Germany is our most important trading partner, so many Dutch companies have German customers.’
So it is true that the German economy – which has already been contracting for two quarters – could face a longer period of economic contraction. “And it’s almost inevitable that we’re going to feel the negative consequences.”