FRANKFURT – German managers were surprisingly more downbeat about their prospects this month, with confidence in construction falling to its lowest mark since September 2005, according to the latest survey by Germany’s Ifo economics institute.
Monday’s results and other recent polls have suggested further softness in the months ahead for Europe’s largest economy.
Ifo said Monday that the results of this month’s survey of companies showed a drop in its headline business climate index to 86.4 points, an unexpected decrease as economists had forecast a fourth-straight rise to 87.7. Ifo announced a tenth of a point reduction in the November reading to 87.2 points.
The expectations component of the index – a measure for the coming six months – also fell unexpectedly with a drop to 84.3 versus the market estimate of 85.6 and last month’s downwardly revised mark of 85.2.
The current conditions component followed the trend with a surprise decline to 88.5 – its worst mark since August 2020 – and below the market forecast of 89.5 and November’s 89.4.
“As the year draws to a close, the German economy remains weak,” Ifo said.
EUR/USD rose nearly a cent on the news before settling at around half that later in the session.
Did Berlin’s budget woes spur flagging sentiment?
Ifo reported declines in its business climate gauge for manufacturing, trade, and construction, the latter of which had nearly half of managers predicting deterioration in the coming months.
Only the service sector showed improvement, the institute said.
The Ifo report followed unexpected weakness in the latest poll of German purchasing managers. Preliminary results showed declines for the services and overall composite index, pushing both further away from growth territory above the 50-point level. The manufacturing index ticked higher, but only to 43.2, a mark still deep in contraction country.
Pollster S&P Global said: “December data indicated a sustained drop in demand for goods and services across the Eurozone’s largest economy. Customer reluctance, geopolitical uncertainty and high interest rates were just some of the headwinds cited by surveyed businesses.”
Like the survey of purchasing managers, the Ifo poll was also administered during a period of major concern in Berlin, where the government was forced to plug a surprise multi-billion-euro budget gap. The government finally approved a spending package for next year on Wednesday, a result that came after some managers had already returned their survey responses.
But an Ifo spokesperson told LiveSquawk News that the institute’s uncertainty index for this month was little changed, suggesting managers may have other concerns.
Carsten Brzeski, ING’s head of macroeconomics, offered a different read: “The fiscal woes of the last month have clearly left their mark on the German economy.”
And he offered a stark summation of the past 12 months: “The Ifo index ends the year at a significantly lower level than in December 2022.”
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- Measures for future, present worsen
- Current conditions lowest in over two years
- Data follows surprise drop in services PMI
- Growth concerns dog German managers
- Manufacturing, trade, construction report more pessimism
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
18 December 2023 | 09:55 GMT
FRANKFURT – German managers were surprisingly more downbeat about their prospects this month, with confidence in construction falling to its lowest mark since September 2005, according to the latest survey by Germany’s Ifo economics institute.
Monday’s results and other recent polls have suggested further softness in the months ahead for Europe’s largest economy.
Ifo said Monday that the results of this month’s survey of companies showed a drop in its headline business climate index to 86.4 points, an unexpected decrease as economists had forecast a fourth-straight rise to 87.7. Ifo announced a tenth of a point reduction in the November reading to 87.2 points.
The expectations component of the index – a measure for the coming six months – also fell unexpectedly with a drop to 84.3 versus the market estimate of 85.6 and last month’s downwardly revised mark of 85.2.
The current conditions component followed the trend with a surprise decline to 88.5 – its worst mark since August 2020 – and below the market forecast of 89.5 and November’s 89.4.
“As the year draws to a close, the German economy remains weak,” Ifo said.
EUR/USD rose nearly a cent on the news before settling at around half that later in the session.
Did Berlin’s budget woes spur flagging sentiment?
Ifo reported declines in its business climate gauge for manufacturing, trade, and construction, the latter of which had nearly half of managers predicting deterioration in the coming months.
Only the service sector showed improvement, the institute said.
The Ifo report followed unexpected weakness in the latest poll of German purchasing managers. Preliminary results showed declines for the services and overall composite index, pushing both further away from growth territory above the 50-point level. The manufacturing index ticked higher, but only to 43.2, a mark still deep in contraction country.
Pollster S&P Global said: “December data indicated a sustained drop in demand for goods and services across the Eurozone’s largest economy. Customer reluctance, geopolitical uncertainty and high interest rates were just some of the headwinds cited by surveyed businesses.”
Like the survey of purchasing managers, the Ifo poll was also administered during a period of major concern in Berlin, where the government was forced to plug a surprise multi-billion-euro budget gap. The government finally approved a spending package for next year on Wednesday, a result that came after some managers had already returned their survey responses.
But an Ifo spokesperson told LiveSquawk News that the institute’s uncertainty index for this month was little changed, suggesting managers may have other concerns.
Carsten Brzeski, ING’s head of macroeconomics, offered a different read: “The fiscal woes of the last month have clearly left their mark on the German economy.”
And he offered a stark summation of the past 12 months: “The Ifo index ends the year at a significantly lower level than in December 2022.”