FRANKFURT –– Resurgent worries about the German economy have again darkened the mood among business leaders just a month after the first boost in optimism since April.
Germany’s Ifo economics institute said Monday that the results of this month’s survey of domestic companies showed its headline reading falling to 85.7 points versus the forecast of 86.0 and the improvement to 86.5 in October, the first rise in six months.
The thinktank’s assessment of the results was as damning as it was blunt: “The German economy is floundering.”
The expectations component of the index, a measure for the coming six months, slipped a tenth to 87.2 points to beat the 87.0 estimate.
The current conditions component shed more than a point to fall to its lowest mark since July 2020. The 84.3 reading compared to 85.7 last month and the estimate of 85.5.
EUR/USD took a bit of a bid on the news to return to pre-release levels.
“The fall in the Ifo Business Climate Index in November left it even deeper into recessionary territory and is consistent with our view that the German economy will continue to struggle in the months ahead,” Fransizka Palmas from Capital Economics said in a note.
“The outlook for 2025 is also poor as a loss of competitiveness in industry and adverse demographics are likely to offset any boost from a recovery in real household incomes and monetary easing,” she warned. “Fiscal policy is also likely to remain tight despite the upcoming change in government. We forecast the German economy to grow by just 0.5% in 2025.”
Index follows PMIs lower as bad news piles up
Flash German PMIs announced Friday continued to paint a bleak picture for Europe’s largest economy. November’s manufacturing gauge rose unexpectedly, but it only increased two-tenths to 43.2 points, miles away from the expansion side above the 50 mark. A surprise decline in the services reading dragged it down to 49.4, the first time it has dropped below 50 since February. These moves cut the overall composite measure to 47.3, its lowest since February.
Those running German companies have a lot on their radar. The European Central Bank cut interest rates in October, with officials expected to lower borrowing costs again next month, but Eurozone inflation rebounded to 2% in October, suggesting little chance of a jumbo 50-basis point rate reduction from the ECB next month. Donald Trump and his Republican Party have won control of the legislative and executive branches of the US government, and his threats of tariffs have investors concerned about Germany’s prospects, according to domestic pollster ZEW. And the three-party coalition in Berlin has imploded, with a snap election now set for late February.
Additionally, Germany said Friday that it had lowered its initial report on last quarter’s GDP growth to a meagre 0.1% from 0.2% to further stoke concerns about the country’s economic health.
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- Europe’s biggest economy “floundering” – Ifo
- Index follows declines in PMIs, investor morale
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
25 November 2024 | 10:05 GMT
FRANKFURT –– Resurgent worries about the German economy have again darkened the mood among business leaders just a month after the first boost in optimism since April.
Germany’s Ifo economics institute said Monday that the results of this month’s survey of domestic companies showed its headline reading falling to 85.7 points versus the forecast of 86.0 and the improvement to 86.5 in October, the first rise in six months.
The thinktank’s assessment of the results was as damning as it was blunt: “The German economy is floundering.”
The expectations component of the index, a measure for the coming six months, slipped a tenth to 87.2 points to beat the 87.0 estimate.
The current conditions component shed more than a point to fall to its lowest mark since July 2020. The 84.3 reading compared to 85.7 last month and the estimate of 85.5.
EUR/USD took a bit of a bid on the news to return to pre-release levels.
“The fall in the Ifo Business Climate Index in November left it even deeper into recessionary territory and is consistent with our view that the German economy will continue to struggle in the months ahead,” Fransizka Palmas from Capital Economics said in a note.
“The outlook for 2025 is also poor as a loss of competitiveness in industry and adverse demographics are likely to offset any boost from a recovery in real household incomes and monetary easing,” she warned. “Fiscal policy is also likely to remain tight despite the upcoming change in government. We forecast the German economy to grow by just 0.5% in 2025.”
Index follows PMIs lower as bad news piles up
Flash German PMIs announced Friday continued to paint a bleak picture for Europe’s largest economy. November’s manufacturing gauge rose unexpectedly, but it only increased two-tenths to 43.2 points, miles away from the expansion side above the 50 mark. A surprise decline in the services reading dragged it down to 49.4, the first time it has dropped below 50 since February. These moves cut the overall composite measure to 47.3, its lowest since February.
Those running German companies have a lot on their radar. The European Central Bank cut interest rates in October, with officials expected to lower borrowing costs again next month, but Eurozone inflation rebounded to 2% in October, suggesting little chance of a jumbo 50-basis point rate reduction from the ECB next month. Donald Trump and his Republican Party have won control of the legislative and executive branches of the US government, and his threats of tariffs have investors concerned about Germany’s prospects, according to domestic pollster ZEW. And the three-party coalition in Berlin has imploded, with a snap election now set for late February.
Additionally, Germany said Friday that it had lowered its initial report on last quarter’s GDP growth to a meagre 0.1% from 0.2% to further stoke concerns about the country’s economic health.
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