Germany: Business morale sours as economy stutters
January 25, 2024
Morale in Germany's private sector unexpectedly sank for a second month in succession for January, according to figures released on Thursday by the Ifo institute.
The gloomy outlook comes after a tough year for Europe's largest economy, with stubbornly high inflation, elevated energy prices, and weak foreign demand.
What the figures showed
Ifo said its business climate index — which tracks about 9,000 German companies' estimation of the business climate — dropped to 85.2 from a slightly downwardly revised reading of 86.3 in December.
The outlook in the retail and construction sectors both deteriorated, along with a significant drop in the service sector. Confidence among industrial producers actually improved in January but was still generally pessimistic.
The index had also fallen unexpectedly in December, after climbing to 87.2 points in November.
Analysts had been expecting another increase for that month, as they had for January.
"Sentiment in German business has clouded over," said Ifo president Clemens Fuest. "The German economy is stuck in recession."
'Seven years of bad luck'
ING economist Carsten Brzeski told the AFP news agency that the mood had not been helped by ongoing strikes by train drivers and supply chain disruptions as a result of the military conflict in the Red Sea. The electric vehicle company Tesla said it would stop most of its production for two weeks in its factory near Berlin at the end of January due to disruption to marine traffic from Houthi attacks.
In addition, the German government has been forced to hastily rethink its 2024 budget after a court ruling upset its spending plans.Ifo's experts are predicting lower growth in the German economy as Berlin slashes spending.
Brzeski forecast another slight recession this year, estimating a GDP contraction of 0.3%.
"It would be the first time since the early 2000s that Germany has gone through a two-year recession, even though it could be a shallow one," Brzeski said.
rc/msh (dpa, Reuters, AFP)
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