Rachel More
BERLIN (Reuters) – German business morale soars in December, weighed down by companies’ pessimistic assessment of the coming months against a backdrop of geopolitical uncertainty and an industrial downturn in Europe’s biggest economy Tuesday’s investigation revealed that things have gotten even worse.
The Ifo Institute announced that its business climate index for December was 84.7, down from 85.6 the previous month, which was revised slightly downward.
Ifo Chairman Clemens Fuerst said, “German economic stagnation has become chronic.”
While the Ifo survey reflects deep anxiety among businesses, another survey published by the ZEW Institute found that investors were much more optimistic, mainly about the change of government after the upcoming February 23 election. It showed that there was hope.
According to a survey of about 9,000 business owners conducted by IFO, although the current evaluation of companies improved, the expectations index fell from 87.0 in November to 84.4 in December. Economists polled by Reuters had predicted 87.5.
US President Donald Trump’s re-election and the war in Ukraine, combined with a wait-and-see attitude on investment ahead of a snap poll, are adding to uncertainty at a time when Germany’s economy is already struggling to gain traction. .
Germany’s industry is expected to experience negative growth for the second consecutive year in 2024, with major companies such as Volkswagen (ETR:) considering production cuts and consumer sentiment cooling due to concerns about job cuts. is expected to face further challenges next year.
Investors become more optimistic
Jörg Kremer, chief economist at Commerzbank (ETR:), blamed the weak mood on deep-seated problems in German industry.
“Therefore, the boost from lower ECB interest rates is unlikely to have a positive impact on gross domestic product (GDP),” Cramer said, predicting growth in 2025 would be modest at 0.2%.
Cyrus de la Rubia of Hamburg Commercial Bank said the deteriorating outlook for companies would probably lead to a reluctance to invest in the short term, especially while waiting for German political parties to release their election campaign manifestos. He said it would be.
“We do not expect any fundamental improvement in the economic situation in the first half of this year,” Dell’Albia said.
However, a December survey by the ZEW Institute showed that investors are willing to bet on future improvements.
The business confidence index increased significantly from 7.4 points in December to 15.7 points, exceeding the expected decline.
While Germany’s elections may bring uncertainty in the short term, ZEW painted it as a positive development in the long term, with hopes that the new government will find a way to revive the economy.
ZEW Chairman Achim Wambach said, “Germany is about to hold a snap election, and the economic outlook is improving due to expectations for economic policies that will encourage private investment and the prospect of further interest rate cuts.”
