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Updated December 18th, 2023 at 15:56 IST

German business confidence falls short in year-end assessment: Ifo

German business climate falls to 86.4, missing forecasts, as Ifo President Clemens Fuest observes year-end economic weakness.

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German business confidence witnessed a decline in December, according to the latest report from the Ifo institute. The business climate index, standing at 86.4, fell short of the 87.8 forecasted by analysts in a Reuters poll. This downturn follows a revised reading of 87.2 in November. Ifo President Clemens Fuest remarked on the persisting weakness in the German economy as the year concludes.

The Ifo institute recently revised its 2024 growth forecast for the German economy from 1.4 per cent to a more modest 0.9 per cent. Analysts attribute this adjustment to the fiscal challenges faced by Germany in the past month. The government had to cut spending to cover a 17 billion euro ($18.32 billion) gap in its 2024 budget, resulting from a constitutional court ruling on unused pandemic emergency funds that created a 60 billion euro ($65 billion) deficit.

Composite PMI impact

The decline in business sentiment aligns with the Composite PMI released the previous week, indicating a worsening economic downturn in Germany. Both manufacturing and services activities contracted, reflecting the challenges faced by the country.

Companies expressed decreased satisfaction with their current business situations, as evidenced by the drop in the current situation index from 89.4 in November to 88.5 in December. Additionally, scepticism about the first half of 2024 was reflected in the expectations component, which declined from 85.1 in November to 84.3 in December.

German GDP contraction

Klaus Wohlrabe, Ifo's head of surveys, highlighted a demand problem in the German economy and pointed out that the data suggest a slight contraction in gross domestic product (GDP) in the fourth quarter. With the German economy already contracting in the third quarter, there are concerns about the possibility of entering a technical recession, defined by two consecutive quarters of negative growth.

Looking ahead, Capital Economics' chief Europe economist, Andrew Kenningham, predicts a stagnant German economy in 2024. Factors contributing to this outlook include the impact of higher interest rates on construction and industry investment, fiscal tightening, and consumer caution amid a weakening labour market.

(With Reuters Inputs)

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Published December 18th, 2023 at 15:56 IST

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