German business sentiment tumbles in December amid ‘chronic’ weakness

GERMAN business morale worsened more than expected in December, a survey showed on Tuesday (Dec 17), weighed down by companies’ pessimistic assessment of the coming months amid geopolitical uncertainty and an industrial slump in Europe’s largest economy.

The Ifo institute said its business climate index decreased to 84.7 in December from a slightly downwardly revised 85.6 the previous month.

Analysts polled by Reuters had forecast a reading of 85.6.

“The weakness in the German economy has become chronic,” Ifo president Clemens Fuest said.

The survey of around 9,000 company managers found an improvement in the assessment of current conditions, but the expectations index slumped to 84.4 in December from 87.0 in November. Economists polled by Reuters had forecast a reading of 87.5.

The re-election of Donald Trump as US president and the war in Ukraine, paired with a political impasse at home ahead of snap polls in February, have added to uncertainty at a time when Germany’s economy is already struggling to get any traction.

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On track for a second consecutive year of contraction in 2024, next year is forecast to bring further challenges as Germany’s industry stalls, with big names like Volkswagen looking to scale back production, and consumer sentiment tumbling on feared job cuts.

“Both the manufacturing industry and the service sector are giving the thumbs down. In the service sector, poorer labour market prospects are likely to have slowly but surely taken hold,” said Thomas Gitzel, chief economist at VP Bank Group.