Despite the recent bank quake, the mood in the boardrooms of German companies brightened surprisingly in March. This can be seen in the Ifo business climate index, which is valued as a leading indicator on the financial markets. This rose to 93.3 points from 91.1 points in the previous month, as the Munich-based Ifo Institute announced on Monday to the survey of around 9000,<> executives. It was the fifth increase in a row. Economists, on the other hand, had expected a slight decline. The German economy is stabilizing, said Ifo President Clemens Fuest.

The collapse of Silicon Valley Bank (SVB) in California had triggered fears that a new banking crisis could loom. Further nervousness on the stock markets was caused by the emergency sale of the ailing Swiss bank Credit Suisse to its domestic rival UBS. At the beginning of the week, however, the Dax was on a recovery course. One of the biggest winners was Deutsche Bank. On Friday, the insurance for a default of the largest German money house had risen sharply and in some cases reached the highest level for years. Some market participants suspect actions of short sellers behind it, who had bet on a fall in the price of Deutsche Bank.

"Things are going up in all key industries"

Ifo expert Klaus Wohlrabe said that despite the turbulence on the financial markets, the German economy is starting the spring "with a good feeling". A winter recession has become less likely. In the fourth quarter of 2022, Europe's largest economy had shrunk by 0.4 percent. With two negative quarters in a row, economists speak of a technical recession.

Companies were somewhat more satisfied with current business than in February. And expectations for the next six months even rose significantly. At the same time, the business climate brightened across the board: "All key sectors are on the rise, from car and machine manufacturers to the chemical and electrical industries," explained Wohlrabe. This is also likely to be related to easing supply bottlenecks. However, a look at the so-called economic clock of the Ifo researchers shows that the economy is still in crisis mode. Despite the improvement, the assessments of the companies surveyed on the situation and expectations remain below average on balance.

IW: "New era of stagflation"

"The banking problems leave companies cold. Corporate sentiment rose, regardless of whether they knew about the events surrounding Credit Suisse and Co. or not," says economist Andreas Scheuerle of Dekabank. Nevertheless, it is to be expected that the banks would react to current events by tightening lending conditions: "And that will throw a spanner in the works of the economy."

According to the employer-related research institute IW, Germany is already under pressure as a business location. High inflation, rising interest rates, geopolitical uncertainty in the wake of the war in Ukraine and now also financial market problems dampened the investment climate. For 2023, the Cologne Institute for Economic Research therefore forecasts only a small increase in gross domestic product of 0.25 percent. "The economy has coped with the crisis better than we could have hoped for last year," says IW economic expert Michael Grömling. Nevertheless, the big recovery will not occur in 2023: "We are facing a new era of stagflation." This scenario describes a phase of stagnating economic power combined with high inflation.

Joachim Nagel, head of the Bundesbank, stressed that the European Central Bank would continue to stand up to inflation: "Rest assured, however, that we will continue to make determined progress on the path of monetary policy normalisation until we have caught inflation and price stability is restored." Inflation in the euro area stood at 8.5 percent in February. The ECB's target of two percent inflation is therefore still a long way off.