German Ifo Business Confidence Lowest In Nearly 3 Years Amid Rising Worries

ifo nov26 25jan19

Germany's business confidence fell for a fifth successive month in January to its lowest level in nearly three years as firms grew more worried about the impact of a chaotic no-deal Brexit and further escalation of the global trade tensions.

The Business Climate Index fell to 99.1 in January, which is the lowest level since February 2016, from 101.0 points in December, results of the monthly survey by the ifo Institute showed on Friday. Economists had expected the reading to ease to 100.6.

The headline index fell below 100 for the first time since May 2016.

Morale deteriorated across the board in all sectors. The level in confidence in the manufacturing sector was much weaker than those in services and construction.

"Disquiet is growing among German businesses," Clemens Fuest, president of the Munich-based ifo Institute said.

"The German economy is experiencing a downturn," the think tank added.

The expectations index of the survey fell sharply to 94.2 from 97.3 in December. Economists had forecast only a modest fall to 97.

Business expectations turned pessimistic for the first time since December 2012, the ifo said.

The current assessment measure eased to 104.3 from 104.9, thus was slightly above economists' prediction of 104.2. The latest reading was the lowest since May 2017.

"Looking ahead, today's Ifo index suggests that it could take until the second quarter before the German economy regains momentum, mainly on the back of investments, consumption and some relief from the global risk factors," ING economist Carsten Brzeski said.

"In this regard, Brexit is probably the single most threatening risk as a "no deal" Brexit would come at the most inconvenient time for the economy, namely exactly when it should be about to rebound."

The shield that stronger domestic demand can offer against external risks will be put to a severe test in the coming months, the economist added.

On Thursday, the European Central Bank acknowledged that the balance of risks to Eurozone growth have moved to the downside.

Germany likely avoided a technical recession in the fourth quarter as the economy apparently rebounded from the decline in the previous quarter with the dampening impact from the WLTP emission tests implementation in the automobile sector gradually coming to an end.

Official data released last week showed that the biggest euro area economy grew for a ninth year running, but the 1.5 percent expansion was the slowest in five years. Growth was largely driven by domestic demand.

The latest purchasing managers' survey showed that the German private sector growth improved at a faster-than-expected pace to a two-month high in January. While, the services PMI hit a two-month high, manufacturing measure fell to a 50-month low and into contraction territory.

Meanwhile, Germany's investor confidence improved further at the start of the year to its highest level in four months, the think tank ZEW said this week.

The German economy shrunk for the first time since early 2015 in the third quarter of 2018, and at the fastest pace in nearly six years, mainly due to weak exports and car sales.

The Economy Ministry has said the German economic growth is set to get stronger at the start of 2019, supported by high order backlog and a boom in the construction industry. Further, tax cuts and monetary benefits are set to boost consumer spending at the start of the year.

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