bvdm Economic Telegram March 2022: Ukraine War Visibly Dampens Business Expectations; Business Climate Index Falls

In March, the printing and media companies surveyed by the ifo Institute assessed their current business situation as slightly better than in February. However, their expectations regarding their future business development were considerably weaker than in the previous month. The values of the current and expected business situation determine the development of the business climate, which is a good leading indicator for the production development of the print and media industry.

Following a slight increase in February, the seasonally adjusted business situation index also rose slightly in the current month. At 101.7 points, the index in March was 1.7 percent higher than in February and thus remained below its pre-crisis level of February 2020 but was significantly higher than in the previous year. This was mainly due to a - seasonally adjusted - somewhat better production trend, which recently recovered slightly both on a month-on-month and year-on-year basis. The processing of existing orders is likely to have played a key role here. At present, however, the continuing shortage of printing paper and the continuing rise in prices for graphic papers are preventing any significant increase in orders on hand. Around 22 percent of participants are currently complaining about an unsatisfactory order situation. Around 17 percent, on the other hand, state that they have a sufficiently large order backlog. The balance is thus -5 percentage points.

While the effects of the war in Ukraine are not yet reflected in the respondents' assessment of the situation, they are visibly affecting the business development of print and media companies expected for the next six months. The seasonally adjusted business expectations index lost 4.9 percent in March, falling to its lowest level since January 2021. At 99.6 points, the index is 15.3 percent below its year-earlier level. This is the sharpest year-on-year decline since April 2020, when the index had fallen by around 18 percent in the wake of the Corona outbreak. Currently, around 29 percent of the companies surveyed expect production to decline in the coming months. As a result, around 33 percent of the participants also expect their future business situation to deteriorate. Compared with the previous month, the seasonally adjusted balance thus fell by around 10 percentage points to -8 percentage points and is around 35 percentage points below its prior-year level. These weak corporate expectations are mainly due to the effects of the war and the associated sharp rise in energy prices. Many companies evidently currently fear widespread production stoppages across all sectors and a further worsening of supply bottlenecks for intermediate goods, and consequently expect procurement costs to rise sharply.