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German Business Confidence Weakens For Fourth Month To Lowest Level Since 2016

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Germany's business confidence eased for a fourth straight month in December to its lowest level in two years, as businesses were increasingly worried about the political developments in Europe and a slowing global growth, suggesting that the biggest economy in the euro area may slide into a technical recession.

The Ifo Business Climate Index dropped to 101 from 102 in November, the Munich-based ifo Institute said Tuesday. Economists had expected a score of 101.7.

The latest reading was the lowest since December 2016, when it was 100.8.

The current assessment index of the survey fell to 104.7 from 105.5, which was worse than the 104.9 economists had predicted.

The expectations measure eased to 97.3 from 98.7, while economists were looking for a score of 98.3.

"The German economy faces a lean festive season," the ifo Institute President Clemens Fuest said.

Confidence weakened sharply in both manufacturing and services. Manufacturers' business expectations turned negative for the first time since May 2016.

Morale deteriorated slightly in the trade sector, while the sentiment was unchanged at a very high level in the construction sector.

The German economy shrunk for the first time since early 2015 in the third quarter and at the fastest pace in nearly six years, mainly due to weak exports and car sales. GDP fell 0.2 percent quarterly, marking the worst decline since the first quarter of 2013.

Another contraction in the fourth quarter would mean the economy has slipped into a technical recession, which is two consecutive quarters of negative growth.

The industrial sector is yet to show any hard evidence of a rebound from the slowdown over the past few months, which was mainly led by automobile industry, where the implementation of the new WLTP emission tests hurt demand.

"For now, strong domestic fundamentals, the weak euro and some (temporary) relief from possible external shock factors such as Brexit and trade all bode well for a rebound of the German economy going into 2019," ING economist Carsten Brzeski said.

"However, downside risks have become bigger and any rebound definitely not be on a straight line but rather a wild ride."

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