German Business Optimism Resilient After VW Scandal

At 5:00 am ET Monday, the Ifo Institue is scheduled to release the business climate index for Germany.

Ifo Institute: “Indeed the Volkswagen scandal has had no impact on the German automotive industry”. Amidst the combination of negative factors, the ongoing rise of the export-oriented manufacturing, including the automotive and high-tech sectors, has contributed to a better financial performance of Germany’s corporate sector.

The decline in business confidence was, however, much less than previously expected, and, coupled with mixed, yet largely upbeat, macro data it is possibly a signal the lackluster global trends have had so far little to no impact on the Eurozone’s biggest economy. The European Central Bank is purchasing 1.1 trillion euros ($1.2 trillion) in bonds with newly created money through September to raise growth and inflation, and has indicated it could expand the program.

Still, BayernLB economist Stefan Kipar concluded: “We’re not going to see a turnaround to the downside just yet”.

“Assessments of the current business situation and business expectations both improved. Firms plan to ramp up production”. But many private sector economists and the German Chambers of Commerce, or DIHK, are less optimistic about future growth.

“All in all, the Ifo index shows that the German economy is not totally immune against external slowdowns and internal scandals”.

In addition, the indicator in wholesaling remained unchanged while it fell in retailing. China remains a major market for VW, and fortunately for them the market that accounts for over a third of its sales has been inclined towards petrol rather than diesel, limiting the diesel scandal’s fallout within the world’s largest auto market.