By Rachel More
BERLIN (Reuters) -German business morale worsened more than expected in December, a survey showed on Tuesday, weighed down by companies’ pessimistic assessment of the coming months amid geopolitical uncertainty and an industrial slump in Europe’s largest economy.
The Ifo institute said its business climate index decreased to 84.7 in December from a slightly downwardly revised 85.6 the previous month.
“The weakness in the German economy has become chronic,” Ifo president Clemens Fuest said.
While Ifo’s survey reflected deep misgivings among companies, a separate survey released by the ZEW institute showed investors were much more optimistic, largely pinning their hopes on a change in government following the upcoming Feb. 23 election.
Ifo’s poll of around 9,000 managers found an improvement in companies’ assessment of current conditions, but the expectations index slumped to 84.4 in December from 87.0 in November. Economists polled by Reuters had forecast a reading of 87.5.
The re-election of Donald Trump as U.S. president and the war in Ukraine, paired with a wait-and-see approach to investment ahead of the snap polls, have added to uncertainty at a time when Germany’s economy is already struggling to get any traction.
On track for a second consecutive year of contraction in 2024, next year is forecast to bring further challenges as Germany’s industry stalls, with big names like Volkswagen (ETR:VOWG_p) looking to scale back production, and consumer sentiment tumbling on fears of job cuts.
INVESTORS MORE OPTIMISTIC
Commerzbank (ETR:CBKG) chief economist Joerg Kraemer blamed the low mood on deeply rooted problems in German industry.
“The boost from falling ECB interest rates is therefore unlikely to have a positive impact on gross domestic product,” Kraemer said, forecasting only minor growth in 2025 of 0.2%.
Cyrus de la Rubia of Hamburg Commercial Bank said companies’ worsening outlook would probably mean short-term hesitance to invest, particularly as they wait for Germany’s political parties to present their election campaign manifestos.
“No fundamental improvement in the economic situation is expected in the first half of the year,” de la Rubia said.
However, the ZEW institute’s December survey showed investors willing to bet on improvement further ahead.
Its economic sentiment index rose strongly to 15.7 points in December from 7.4 points, beating expectations for a decline.
While Germany’s elections may spell uncertainty in the short term, the ZEW painted them as a positive development in the long run given hopes that a new government would find ways to fix the economy.
“With snap elections ahead in Germany and the resulting expectations of an economic policy encouraging private investment as well as the prospect of further interest rate cuts, the economic outlook is improving,” ZEW President Achim Wambach said.
