Investor Sentiment in Germany Falls More Than Expected

Investor sentiment in Germany fell more than expected in October, ending a five-month streak of improvement amid pressure from rising energy prices on private consumption and investment, according to data released by the ifo Institute for Economic Research. The index dropped to 28.1 points, down from 34.7 points in the previous month, while analysts surveyed by Reuters had expected it to fall to 30 points.

Achim Baumbach, head of the ifo Institute, said: “Private consumption and investment remain weak due to high energy prices; these prices are squeezing real incomes, raising production costs, and keeping inflation elevated for longer.”

Earlier, the Federal Statistical Office announced that German producer prices recorded their fastest rise in three and a half years in September, driven by higher energy prices resulting from the Iran war. The surge in oil and natural gas prices due to the conflict has slowed the long-awaited recovery in Europe’s largest economy. Baumbach said the economy has begun to gradually emerge from recession, but its recovery still lacks the foundations for self-sustaining growth.

The German governing coalition is facing mounting pressure as the far-right Alternative for Germany party gains ground. The party’s recent successes in regional elections have heightened concerns among major political parties and exposed tensions within the ruling coalition. Additionally, the resignation of Labor Minister Barbara Sperling last week has added to the uncertainty.