Stable reading on German auto sector activity

Germany’s No. 1 Think Tank was expected to report a slide in the business climate from 108.5 in September to 107.8 now in October.

Kristian Rouz – German business confidence in October dropped less than anticipated as the impact of the VW emissions scandal to the nation’s automotive industry turned out to be insignificant.

Volkswagen has said it will cut investment plans at its VW division – the largest by revenue – and speed up cost cutting to cope with the cost of cleaning up the emissions scandal.

Overall, the business climate index in manufacturing is declining for the third consecutive month, although industries are running close to full capacity (84.4%). Ifo said that firms in the auto sector were even more optimistic about both their current business situation and their trade outlook for the next six months.

Meanwhile, the slowdown in emerging markets, potentially bearing a negative tendency in the German exports, has thus far failed to provide a major blow to manufactured goods’ output and shipments.

Analysts welcomed the better-than-expected reading of the Ifo barometer this month.

Carsten Brzeski, chief economist at ING, said German businesses showed “an interesting reaction to the recent series of uncertainties and turmoil”.

The survey is being seen as a sign of the German economy’s resilience.

Capital Economics economist Jennifer McKeown was more cautious.

In addition, the indicator in wholesaling remained unchanged while it fell in retailing.

“Admittedly, the decline… was not as sharp as the consensus forecast. Business expectations hit their second-highest level since reunification at the start of the 1990s”.

BayernLB economist Stefan Kipar similarly felt that the economic fallout from the VW scandal appeared to be limited for now.

“We’re not going to see a turnaround to the downside just yet”, Kipar concluded.