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Last week, we released an article on how Germany’s growth prospects are weakening. Now, one of Germany’s most prominent economic research centres, the ifo institute, released its latest monthly business sentiment update on December 18th, called the Business Climate Index.
In it, ifo reported that the Business Climate Index fell to 86.4 points in December, down from 87.2 points (seasonally adjusted) in November 2023.
Why this particular outlook matters
This is a damning account for Europe’s leading economy, given the status of the ifo institute and the general high esteem and accuracy of their business climate index in months past. The ifo Business Climate is based on approx. 9,000 monthly responses from businesses in manufacturing, the service sector, trade, and construction. Companies are asked to give their assessments of the current business situation and their expectations for the next six months, from “good” and “satisfactory” to “unchanged” or “poor”.
The report opened with a statement of general pessimism on the German economy, saying:
“Sentiment in German business has clouded over. Companies were less satisfied with their current business. They were also more skeptical about the first half of 2024. As the year draws to a close, the German economy remains weak.”
Things ‘significantly worse’ for Germany
The ifo noted that in the manufacturing sector – vital for Germany’s economy and for the European Union’s overall – the Business Climate Index “fell noticeably”. In terms of further details, the index noted that things were especially grim for those in infrastructure and trade – with even retail expected a gloomy Christmas period.
Companies assessed their current business situation as significantly worse. Their expectations also grew more pessimistic. Energy-intensive industries are having a particularly tough time. Order books continue to shrink overall. In construction, the Business Climate Index fell to its lowest level since September 2005. In trade, the business climate suffered a setback. Companies assessed their current situation as markedly worse. Their expectations also darkened. For retailers, holiday trade is disappointing this year.”
A silver lining for services
The only sector that seemed to be spared – although not entirely – was the services industry.
In the service sector, the business climate improved slightly. Service providers were more satisfied with their current business. They also reported less skepticism in their outlook for the coming six months. In restaurants and catering, the business situation improved but expectations took a nosedive.”
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