German business optimism remains strong

However, the outlook for profits is dimmed by forecasts of a sharp rise in costs, particularly in the manufacturing sector.

The latest Business Outlook survey from IHS Markit shows that private sector firms in Germany are highly confident about the chances of business activity rising over the next 12 months, with the degree of optimism unchanged from the previous survey in June.

Almost half of companies expect activity to rise, compared with under one-in-ten predicting a reduction.

At +40%, the resulting net balance (i.e.

those forecasting an increase minus those anticipating a fall) is above the trend seen since the global financial crisis (+32%) and broadly in line with the eurozone average (+41%).

Germany’s manufacturers (+46%) are comparatively more upbeat about the outlook for activity than their services counterparts (+37%).

However, whereas the latter have grown in confidence since the summer, goods producers are now less optimistic.

The survey highlights a range of factors expected to support growth in the year ahead, including new, higher quality products and services, expansion into export markets (notably Russia) and a potential boost to domestic demand from the quick formation of a new government.

Germany business activity expectations Many of the main threats to the outlook revolve around political issues, including Brexit negotiations, the impact of Euroscepticism and tensions between the US and North Korea.

A shortage of qualified staff also poses a serious risk to growth prospects, according to the report, as do rising raw material costs. ■