Germany: Business confidence drops further into pessimistic territory
Sentiment among German businesses became more pessimistic in February with the sixth consecutive drop in the Ifo business climate index. In February, the index fell to 98.5 from 99.3 in January and reached the lowest level since December 2014. Consequently, the index moved further south of the neutral 100-mark that separates optimism from pessimism. The latest drop in sentiment came on the back of a deterioration in firms’ outlook on business activity in the next six months, as well as their assessment of the current business situation.
Firms in the manufacturing sector retained a positive outlook on the current situation, although their assessment was revised downwards at a marked rate. Moreover, manufacturers have become increasingly pessimistic regarding their outlook on business expectations. This follows February’s PMI data, which showed manufacturing output falling for the first time in nearly six years. Meanwhile, companies in the services sector viewed the current business climate slightly less favorably, while their views on business expectations dropped markedly.
The sub-index for the construction sector painted a mixed picture: The current climate was assessed less favorably, but business expectations inched up slightly. Meanwhile, the trade sector also sent mixed signals. Retail traders viewed the current situation more favorably, but the assessment of wholesale traders deteriorated. However, business expectations across the trade subsector inched up somewhat.
Commenting on the sixth monthly consecutive deterioration in business sentiment, Carsten Brzeski, chief Germany economist at ING, noted that:
“The increasing dichotomy between domestic strength and external uncertainties or domestic strength and faltering manufacturing is both remarkable and worrying. It raises the question of who is leading whom? Will domestic demand follow weaker external activities, eventually bringing the entire economy down to its knees or will manufacturing rebound?”