German business morale takes surprise hit in new year
Morale among German businesses dropped unexpectedly in January, a survey has shown, weighing on hopes that Europe’s biggest economy would have a strong start to the year.
The business climate index from the Ifo Institute think tank fell to 95.9 in January from 96.3 in December, falling well short of expectations that it would rise to 97.
It was a sign that the “German economy is starting the year in a cautious mood,” said Ifo president Clemens Fuest. “This was due to companies’ more pessimistic outlook for the coming months.”
Once the engine of the Eurozone economy, Germany had a torrid 2019 as the US-China trade war hit global demand and Brexit uncertainty took a toll.
Last week, survey data suggested that the country’s private sector picked up in January as services sector activity rose and the decline in manufacturing eased.
However, today’s survey from Ifo cut against that narrative, with the services sector indicator falling noticeably.
Andrew Kenningham, chief Europe economist at Capital Economics, said the data “comes as a bit of a surprise, following good news from other surveys recently”.
Yet Commerzbank chief economist Joerg Kraemer said that the reading was “good at second glance”.
This was because “the key index for export-oriented manufacturing has risen markedly,” he said.
Ifo said there was a particularly notable increase in the index of the current situation for manufacturers, which has not risen so strongly since February 2017.
German industry declined in 2019, so any turnaround in 2020 would have to reverse that trend.
Kraemer said the survey “supports our view that the decline in industrial production should end in the spring”. Yet he added: “We still expect only an anaemic recovery.”