German Business Takes Volkswagen Scandal in Stride

German business morale fell slightly in October, suggesting Europe’s largest economy remains resilient in the face of a slowdown in emerging markets and the emissions scandal that has rocked its largest carmaker Volkswagen.

The Munich-based Ifo economic institute’s business climate index, based on a monthly survey of some 7,000 firms, dipped to 108.2 in October from 108.5 in September, a better reading than the 107.8 forecast by economists in a Reuters poll.

A separate index measuring corporate expectations over a half-year horizon pushed up to a seven-month high of 103.8, suggesting many firms believe they can cope with the economic headwinds.

“The German economy is proving remarkably resilient in view of this autumn’s multiple challenges,” Ifo head Hans-Werner Sinn said in a statement.

“Indeed the Volkswagen scandal has had no impact on the German automotive industry. The climate index for the automotive sector even continued to rise this month.”

The German economy has been sending out mixed signals in recent months, with industrial orders, output and exports all slumping in the month of August, according to data released earlier this month.

Two weeks ago, the closely-watched ZEW survey of analysts and investors tumbled to its lowest level in a year, suggesting to some that the VW scandal could have a significant impact on the economy.

But the Ifo numbers will ease those concerns. Although the Ifo index of current conditions dipped to a seven-month low of 112.6, the rise in expectations suggested that most firms are not too worried about the Volkswagen crisis, in which the company has admitted to rigging diesel emissions tests.


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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam