German business confidence falls in December amid ‘chronic’ weakness By Reuters

By Raquel More

BERLIN (Reuters) – German business confidence worsened more than expected in December, a survey showed on Tuesday, weighed down by companies’ pessimistic assessment of the coming months amid geopolitical uncertainty and an industrial slump in the largest economy. of Europe.

The Ifo institute said its business climate index fell to 84.7 in December from a slightly downwardly revised 85.6 the previous month.

“The weakness of the German economy has become chronic,” said Ifo president Clemens Fuest.

While the Ifo survey reflected deep misgivings among companies, a separate survey published by the ZEW institute showed that investors were much more optimistic, largely pinning their hopes on a change of government following the upcoming elections on February 23.

Ifo’s survey of around 9,000 managers found an improvement in companies’ assessment of current conditions, but the expectations index fell to 84.4 in December from 87.0 in November. Economists polled by Reuters had forecast a reading of 87.5.

Donald Trump’s re-election as US president and the war in Ukraine, along with a wait-and-see approach to investment ahead of early elections, have increased uncertainty at a time when Germany’s economy is already struggling to gain traction. .

Heading for a second consecutive year of contraction in 2024, the coming year is forecast to bring new challenges as the German industry stagnates, with big names like Volkswagen (ETR:) looking to reduce production and consumer confidence falling by fear of job cuts.

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Commerzbank (ETR:) chief economist Joerg Kraemer attributed the bad mood to deep-seated problems in German industry.

“The push from the ECB’s interest rate drop is therefore unlikely to have a positive impact on gross domestic product,” Kraemer said, forecasting only lower growth in 2025 of 0.2%.

Cyrus de la Rubia of Hamburg Commercial Bank said the worsening outlook for businesses would likely mean short-term hesitation to invest, particularly as they wait for German political parties to present their election campaign manifestos.

“No fundamental improvement in the economic situation is expected in the first half of the year,” de la Rubia said.

However, the ZEW institute’s December survey showed that investors were willing to bet on improvements in the future.

Its economic sentiment index rose sharply to 15.7 points in December from 7.4 points, beating expectations for a drop.

While the German elections may mean uncertainty in the short term, the ZEW described them as a positive development in the long term, given hopes that a new government would find ways to fix the economy.

“With the early elections in Germany and the resulting expectations of an economic policy that encourages private investment, as well as the prospect of further interest rate cuts, the economic outlook is improving,” said ZEW President Achim Wambach.