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German business morale hits two-year low in December

[FRANKFURT] Confidence among German business leaders fell further in December, a closely-watched survey said Tuesday, as global trade friction and Brexit uncertainties weigh on Europe's top economy.

The Munich-based Ifo institute's monthly barometer slipped to 101.0 points from 102.0 the previous month, a bigger dip than analysts had been expecting and the index's lowest level since September 2016.

"Concern is growing among German businesses," Ifo chief Clemens Fuest said in a statement.

"The German economy faces a lean festive season."

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The survey found that companies were both less satisfied with their current situation and more worried about the future.

Manufacturers were the most pessimistic. Their business expectations were turning negative "for the first time since May 2016", Fuest noted, prompting them to scale back their production plans.

In the service and trade sectors the mood was also downbeat. The only bright spot came from construction companies, where confidence remained at a "very high level".

The Ifo reading, based on a survey of some 9,000 firms, is the latest in a slew of disappointing indicators for Europe's powerhouse.

Analyst Carsten Brzeski from ING Diba Bank said that as well as grappling with the fallout from the US-China tariffs spat and bracing for the trade disruption that a hard Brexit would cause, the German economy struggled with a series of one-off factors this year.

In the third quarter the country's economy contracted for the first time since 2015 as German carmakers grappled with tough new emissions tests and record-low water levels in the Rhine slowed down river shipping.

"Somehow 2018 has ended two urban legends: German soccer teams no longer score in the last minute and the economy no longer withstands all manner of external headwinds," Brzeski said.

But "strong domestic fundamentals" and the prospect of easing trade tensions "bode well for a rebound of the German economy going into 2019", he added.

AFP