By Ed Frankl
Business sentiment in Germany sank unexpectedly for the first time in four months, according to a closely watched survey, offering further evidence that the economy is mired in a recession.
The Ifo business-climate index fell slightly to 86.4 in December from a revised 87.2 in November, data from the Ifo Institute showed Monday.
The reading was below expectations of 87.7 from economists polled by The Wall Street Journal.
Companies were less satisfied with their current business, while also more skeptical about the situation in the first half of 2024, according to Clemens Fuest, president of the Ifo Institute.
“As the year draws to a close, the German economy remains weak,” he added.
The overall level of the indicator was dragged by manufacturing, a perennial laggard, where the business climate fell significantly as order books shrank and energy-intensive firms in particular struggled, Ifo said. The indexes for trade and construction also ticked down on month in December.
By contrast, the services sector, which has been more resilient in recent months, improved slightly, with better expectations for the six months ahead.
Germany’s central bank, the Bundesbank, last week cut its growth forecasts for the next two years, having previously said it expects the economy to contract in the final three months of 2023. Official data confirmed that gross domestic product declined 0.1% in the third quarter, suggesting Europe’s largest economy is now in a recession.
It also echoes results from a purchasing managers’ survey on Friday, which showed sentiment declining on month in December.
“It looks very likely that GDP will contract for a second successive quarter in 4Q and the outlook for 2024 does not look much better,” Andrew Kenningham, chief Europe economist at Capital Economics, said in a research note.
“The outlook for next year has been deteriorating as high interest rates are denting investment in both industry and construction and consumer confidence remains low,” he said.
The German government’s plan to tighten fiscal policy in the wake of the country’s constitutional court ruling–which called some planned spending unconstitutional–won’t help either, Kenningham added.
Write to Ed Frankl at [email protected]
Read the full article here
