18.12.202312:01:00UTC+00German Business Confidence Unexpectedly Deteriorates

Sentiment among German companies deteriorated at the end of the year, providing more evidence that the economy is mired in a recession, results of a key survey showed Monday.

The business climate index fell to 86.4 in December from a revised score of 87.2 in the previous month, survey results from the Munich-based ifo Institute revealed. The score was forecast to improve to 87.8.

The ifo survey showed that companies were less satisfied with their current business and they were also more skeptical about the first half of 2024.

At 88.5, the current situation index hit the lowest since August 2020. The reading was below November's 89.4 and also economists' forecast of 89.5.

The expectations index declined to 84.3 from 85.1 a month ago, while it was forecast to rise to 85.8.

"As the year draws to a close, the German economy remains weak," ifo Institute President Clemens Fuest said.

The renewed fall in ifo business confidence echoes the message from the flash Purchasing Managers' survey released last week and unequivocally points to a continued downturn, Capital Economics' economist Andrew Kenningham said.

Kenningham said it looks very likely that the economy will contract for a second successive quarter in the fourth quarter.

The economist penciled in zero economic growth for 2024, mirroring the impact of higher interest rates on investment in construction and industry, the fiscal tightening as well as continued consumer caution amid a weakening labor market.

The ifo survey revealed that business confidence in manufacturing declined sharply in December as companies assessed their current business situation as significantly worse. Moreover, their expectations turned more pessimistic.

On the other hand, in the service sector, the business climate improved slightly.

Service providers were more satisfied with their current business. They also reported less skepticism in their outlook for the coming six months.

The survey showed that business climate in trade suffered a setback. Companies assessed their current situation as markedly worse. Also, their expectations darkened.

In construction, business confidence fell to its lowest level since September 2005.

Current situation assessment deteriorated further. Moreover, roughly one in two companies expects business to deteriorate in coming months.