Germany‘s ifo Institute has said that the country’s economy is currently ‘floundering’, as the business sentiment index fell further in November.
The ifo Business Climate Index fell in November to 85.7 points, down from 86.5 points in October, the group said, largely driven by a worsening assessment of the current business situation.
Business expectations also fell slightly among firms, as sentiment became ‘gloomier’, the ifo Institute said.
Sector by sector
The manufacturing sector saw the business climate worsen, the institute said – while companies expressed marginally improved satisfaction with the current situation, their outlook for the coming months remained skeptical. Order volumes also fell.
The services sector saw a notable decline in its business climate index, as companies assessed their situation as ‘significantly worse’, coupled with a more pessimistic outlook.
In contrast, the trade sector saw a marginal improvement, as both retail and wholesale businesses reported a better current situation, as well as ‘less pessimistic’ business expectations. However, sentiment among companies is still a long way off from being positive, the institute said.
Finally, the construction sector saw a noticeable decline in its business climate, with firms reporting heightened dissatisfaction with current business conditions, as well as ‘more sceptical’ expectations. Read more here.
The view from ING
Commenting on the data, Carsten Brzeski, global head of macro at ING, said, “Looking ahead, we know from past experiences that the Ifo index tends to capture short-term events with a certain delay. In this regard, the risk is high that the results of the US elections and the collapse of the German government will still leave their marks on sentiment over the next few months.
“The outcome of the US elections and the potential economic policies coming from the next Trump administration are the latest addition to Germany’s economic risks. With 10% of German exports going to the US (of which the largest part is automotives), any US tariffs would hit an already suffering sector. Even more important is the impact that tax cuts and deregulation in the US, combined with already low energy prices, would have on German competitiveness – which is definitely a negative one.”
He added that the data indicates that the German economy remains “stuck in stagnation”, with a technical recession likely this winter. Read more here.
