Germany: Business sentiment retreats in January
German business confidence slumped at the opening of the new year, with the ifo Business Climate Index dropping to 95.9 in January from 96.3 in December. Data revealed that this was mostly reflective of deteriorating views on the months ahead; Clemens Fuest, president of the ifo Institute, stated that “the German economy is starting the year in a cautious mood.”
Sector-level data showed a diverging trend. Sentiment in the construction sector dropped on the back of less rosy views on the current situation while views on the outlook deteriorated. Confidence in the service sector regarding the outlook evaporated; however, views on the current situation improved. Within the trade sector, confidence levels rose on the back of an improved outlook on both the current and expected situation. Yet this was due to wholesalers, as retailers “were more reserved”. More positively, sentiment levels among firms in the manufacturing sector rose strongly, although remained mired in pessimistic territory. This was particularly due to the strongest rise in the current situation sub-index in nearly three years. Sentiment regarding the expected business situation also improved.
Carsten Brzeski, chief economist at ING Germany, commented that: “The latest ifo index reading shows that a bottoming out does not automatically lead to a rebound. The economy will continue moving sideways.”