ifo survey: Companies not in a festive mood

Many German companies are not in a particularly festive mood at the moment. This at least is the conclusion reached by the ifo Institute in its latest survey. The Business Climate Index fell in December to its lowest level in two years for the fourth time in succession, with both business expectations and the assessment of the current business situation having deteriorated.

As in previous months, sentiment is currently dominated by developments in the industrial sector where the deterioration in the business climate since the summer is particularly striking. Companies in the manufacturing sector have become increasingly sceptical with regard to the months ahead, especially given the numerous negative factors at international level. Uncertainty over Brexit and the Macron government’s problems in France have particularly subdued the economic climate in December. This has caused the business expectations of industrial companies to slide back into negative territory for the first time since spring 2016.

In other sectors, however, things still look more positive. The construction industry in particular is continuing to benefit from the boom on the real estate market, with the business climate here currently only slightly below the all-time high reached in autumn 2018. And despite three consecutive declines, the service sector’s indicator is also still at a good level.

All in all, the ifo survey suggests that the German economic recovery generally anticipated for the final quarter 2018 will evidently be less strong than expected. This also means that the economy will be in a somewhat weaker starting position in the new year. The ifo index trend is only likely to reverse direction once the uncertainty over Brexit has hopefully been resolved in a positive sense and the difficulties in France and Italy have at least not got any worse.

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