“The worldwide interest rate increases are slowly affecting demand,” says the Ifo Institute. The export plans of the automotive industry and the metal sector are particularly affected.
The rise in interest rates is clouding the business of German exporters. In May, the Ifo Institute’s index of export expectations fell from 6.5 points in the previous month to 1.8 points, as the Munich-based economic research institute announced on Thursday. “The global interest rate hikes are slowly having an impact on demand,” said Klaus Wohlrabe, head of the Ifo surveys. “The German export economy lacks dynamism.”
The export plans of the auto industry, which had recently hoped for better foreign business, suffered a severe setback. Manufacturers in the metals and textiles sectors are also assuming that foreign sales will fall. The index is based on the monthly survey of over 2,300 industrial companies.
The connection between interest rates and exports: The central banks want to lower the rate of inflation by raising interest rates. As higher interest rates make borrowing more expensive, overall economic activity is dampened, particularly investment.