German business sees a surprise fall in confidence as political risk looms

 
Jasper Jolly
'Mall Of Berlin' Opening Day
German retailers saw confidence dip (Source: Getty)

Confidence in businesses in Germany has posted a surprise fall to start 2017, as worries over Europe’s medium-term outlook increased, according to a long-running survey.

Sentiment fell from a three-year high in December to its lowest point since September, according to a survey of over 7,000 companies by Germany’s Ifo Institute. Analysts had expected a small further rise in morale.

Manufacturers saw declines in confidence despite measures of business activity, including the widely followed purchasing managers’ index, showing an expanding sector. They noted steady current conditions but a “marked” decline in future prospects, according to Ifo.

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Retailer sentiment also cooled during the month, with increased fears over prospects. The retail sector is particularly vulnerable to inflation, as increased prices can negatively affect demand.

However, respondents from the construction sector found current conditions to be the best since the survey began.

Fears of economic chaos after the Brexit vote led confidence in the EU’s largest economy to dip, but it recovered strongly as the effects on Europe’s finances were limited.

However, there remains significant uncertainty surrounding political events over the coming year, with the French general election in particular worrying analysts. Anti-euro candidates in the Netherlands and Germany, as well as France, could make gains this year, putting pressure on European integration.

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