Economy
Business news in Germany: Business confidence falls

Business news in Germany: Business confidence in Germany – the main driver of regional growth – fell in August to 80.3, which, however, was higher than experts’ expectations, Bloomberg said.
The Ifo Institute business sentiment indicator fell to 80.3 in August, while the estimate was even lower at 79.0, indicating a 0.1% increase in the second quarter. This unexpected growth helped the country narrowly avoid stagnation.
What affects business confidence in Germany?
Business culture in Germany has always been at a high level. The deterioration in business confidence in Germany is mainly due to a steep rise in inflation and increased fears of a possible recession in the country.
At the same time, the outlook for the next six months has fallen to 80.3 from 80.4 in July, although economists had predicted a steeper decline.
Because of energy problems – the country’s government has set a course to switch from Russian fuel to alternative supplies as soon as possible – business surveys highlight Germany as one of the vulnerable members of the eurozone, which includes 19 countries. German output began to decline in July and contracted again in August, according to S&P Global.
Germany’s government spending, as well as household spending, helped keep it afloat. However, a sharp rise in prices threatens households and companies.
The index of entrepreneurial confidence is a qualitative indicator that allows us to characterize the economic activity of organizations and provide anticipatory information about changes in economic variables according to the answers of managers about the forecast of output, balances and demand for it. The indicator is the arithmetic average of the “balances” of the answers to the questions about expected output, actual demand, and current balances of finished goods (the latter with the opposite sign).
Earlier, we reported that the U.S. shale sector in 2022 will record cash flow.
Economy
Bank of England Halts Interest Rate Hikes Amid Cooling Economy


The Bank of England (BoE) kept the base rate on hold today, marking a pause after 14 consecutive interest rate rises. The decision was influenced by lower-than-expected inflation numbers and a series of economic reports suggesting a cooling down of the economy. However, it remains uncertain whether the current 5.25% will be the peak for the base rate or if rates could start to climb again.
The BoE’s decision to halt the rate increases has significant implications for savings rates and mortgage rates, which were discussed by Georgie Frost, Lee Boyce and Simon Lambert today. The trio explored why interest rates were held, what factors contributed to the dip in inflation, potential future scenarios, and what these developments mean for savers, borrowers, and investors.
The BoE’s decision follows strong criticism for its failure to predict the surge in inflation that peaked at 11% in autumn 2022. In response to this criticism, the bank has commissioned former Federal Reserve chairman Ben Bernanke to review its forecasting models for both inflation and GDP growth.
An independent analysis comparing the BoE’s performance with other forecasting models highlighted two key errors. First, the bank under-predicted inflation in 2021 compared to an international econometric vector autoregressive model. Second, it over-predicted peak inflation in the final quarter of 2022, expecting 13.1% when it came in at 10.8%. These miscalculations led to larger-than-usual interest rate hikes and potentially increased the likelihood of a UK recession in the coming months.
The BoE’s forecasts have been accurate over a 15-year period but have faltered significantly over the past two years when inflation has been high. The bank’s forecasts have been particularly inaccurate following the initiation of quantitative easing (QE) in 2009, raising questions about its understanding of the policy’s impact.
The latest inflation data, published on September 20, indicates a 6.8% inflation rate for the third quarter of 2023. Both the BoE’s forecasts and the international econometric vector autoregressive model predict this fairly accurately, while other models over-predict.
In light of these findings, suggestions have been made for the BoE to be more transparent about its inflation model and to consider hosting a “prediction tournament” to measure its model’s effectiveness against rivals. This open-sourcing of forecasting harks back to an annual conference run by Professor Kenneth Wallis of the University of Warwick in the 1980s and 1990s, which assessed various institutions’ economic forecasting models. The revival of such a conference could be a part of Ben Bernanke’s review of the BoE’s forecasting.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Economy
ECB Maintains High Interest Rates to Combat Inflation Amid Economic Slowdown


The European Central Bank (ECB) is determined to keep interest rates high enough to restrict business activity “as long as necessary” to counter inflation, according to the bank’s president, Christine Lagarde. Speaking on Monday, she noted that the upward pressure on prices remains robust in the eurozone due to factors such as strong spending on holidays and travel and increasing wages.
Annual inflation in the eurozone decreased slightly from 5.2% in July to 5.3% in August. Despite this slight drop, Lagarde emphasized that inflation is still expected to remain too high for too long. She reiterated the ECB’s commitment to bringing inflation back to its 2% medium-term target promptly.
In response to the persistent inflation, the ECB recently increased its benchmark deposit rate to an all-time high of 4%, up from -0.5% in July 2022. This move came despite signs of increasing weakness in the European economy. Other central banks, including the Bank of England and the U.S. Federal Reserve, refrained from rate hikes last week as they approach the end of their rapid rate-increase campaigns.
Inflation surged as the global economy recovered from the COVID-19 pandemic, leading to supply chain disruptions. The situation was exacerbated when Russia invaded Ukraine, causing energy and food prices to skyrocket.
Lagarde believes that interest rates are now at a level where they can make a substantial contribution to reducing inflation if maintained for a sufficiently long duration. The ECB projects inflation will decline to an average of 2.1% in 2025 after peaking at a record-high 10.6% in October.
The ECB’s higher rates have led to a significant slowdown in real estate transactions and construction, sectors highly sensitive to credit costs, effectively ending a prolonged rally in eurozone home prices.
The European economy broadly stagnated in the first half of this year, with incoming data indicating further weakness in the July-to-September quarter. However, Lagarde cited ECB forecasts anticipating an economic recovery as inflation decreases, which would provide consumers with more purchasing power.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Economy
China central bank adviser proposes structural reforms to revive economy


© Reuters. FILE PHOTO: Paramilitary police officers stand guard in front of the headquarters of the People’s Bank of China, the central bank (PBOC), in Beijing, China September 30, 2022. REUTERS/Tingshu Wang/File Photo
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SHANGHAI (Reuters) – China has limited room for further monetary policy easing, and it should pursue structural reforms such as encouraging entrepreneurs rather than counting on macroeconomic policies to revive growth, a central bank adviser said on Sunday.
Liu Shijin, a member of the People’s Bank of China’s (PBOC) monetary policy committee, told a financial forum in Shanghai that Beijing’s room for monetary policy easing was limited by widening interest rate differentials with the U.S.
Fiscally, Chinese governments at various levels are under stress, he told the annual Bund Summit conference.
“If China continues to focus on macro policies in its efforts to stabilise growth, there would be more and more side effects,” said Liu, vice president of the Development Research Center of the State Council.
“More importantly, we will again miss the opportunity for structural reforms.”
China’s post-COVID recovery has lost momentum amid weak consumption, falling exports and a deepening property debt crisis, and the economy is struggling despite a slew of monetary and fiscal measures to boost confidence.
Liu proposed on Sunday a new round of structural reforms that could aid the economy immediately, while also injecting long-term growth momentum.
They include demand-side reforms with a focus on giving migrant workers access to public services enjoyed by city dwellers, as well as supply-side reforms that involve igniting entrepreneurship in emerging industries, he said.
China’s top economic planning body announced this month it would create a new department to help private businesses, as Beijing seeks to revive investor confidence hurt by government crackdowns on sectors ranging from the internet to private tutoring.
Liu said on Sunday that China should give clearer recognition to private businesses’ status, both ideologically and politically.
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