East German economy: mood is falling, hope remains!

East German economy: mood is falling, hope remains!

The current monthly report from the Dresden Ifo Institute reports a slight deterioration in the business climate in the East German economy. This result is based on the monthly survey of around 1,700 companies from various sectors who assess their business situation and expectations.

For the month of June 2023, there is a deterioration in the mood among companies. They rate their current business situation worse than last month and lower their expectations slightly. The business climate has deteriorated significantly, particularly in industry. Entrepreneurs are more pessimistic about their business situation compared to the previous month, although future expectations are improving.

Industry overview

Different trends can be seen in the individual sectors. The business climate in the service sector has improved slightly. In the construction industry, however, there has been a slight deterioration. Retail shows a differentiated picture: While wholesale companies assess their situation more positively than in May and increase their expectations, retailers report a decline in business and lower their expectations accordingly.

These findings are consistent with a further decline in business confidence, most recently seen from 86.9 points in December to 85.5 points in January. An Ifo business climate index above 100 indicates positive business sentiment, which is currently not the case, especially in the eastern German manufacturing sector.

Expectations and challenges

Skepticism regarding business expectations has generally increased. Although there has been a slight deterioration in the business climate in the service sector, companies are assessing ongoing business somewhat more positively, but remain pessimistic about future expectations. The situation in retail also improved in January, while wholesale valuations were subject to a negative development. In the construction sector, on the other hand, the business situation has improved significantly, but expectations are falling here too.

The Ifo business climate index, which is considered an accurate early indicator of economic development, is based on the monthly reports from surveyed companies in the manufacturing, service, trade and construction industries. Increasing uncertainties and challenges in the industry have a direct impact on the overall sentiment rating of companies.

A positive signal is the secure existence of the Dresden Ifo Institute, which is guaranteed by the adopted double budget for Saxony. The location was originally on the verge of closure due to planned cuts by the Free State. This could be crucial for further observation and assessment of the business situation and future expectations.

Overall, it can be seen that the mood in the East German economy remains tense due to increasing uncertainty and pessimistic future prospects. Developments will need to be monitored more closely in the coming months.

Further information about the state of the business climate can be found at South German newspaper and at the Time.