Germany's Economic Woes Continue as Business Confidence Slumps

German Business Confidence Takes a Hit

“Either German companies are not yet overly concerned about US trade policy or...”

German business confidence has fallen, according to the Ifo index, confirming the economy remains stuck in a rut amid ongoing uncertainty.

Germany's business confidence has taken a hit, falling more than expected in November. This decline adds to concerns about the country's economic outlook, which is already predicted to be the weakest among the Group of Seven (G7) nations this year.

According to the Ifo Institute for Economic Research in Munich, the business climate index for Germany dropped from 86.5 in October to 85.7 in November. This 0.8-point decline exceeded analysts' predictions by 0.3 points. The Ifo index is a closely watched indicator, based on a survey of approximately 9,000 companies in Germany, Europe's largest economy.

The Ifo Institute's findings are based on a comprehensive survey of businesses across various sectors. The survey provides valuable insights into the sentiment and expectations of German businesses, helping to gauge the overall health of the economy.

Germany's business confidence rating has taken a hit, dropping from 85.7 to 84.3, according to the latest figures. This decline has led Clemens Fuest, president of the Ifo Institute, to conclude that “The German economy is lacking strength.”

Despite this, business expectations remain relatively stable, slipping only marginally from 87.3 to 87.2. Robin Winkler, chief economist for Germany at Deutsche Bank Research, finds this stability remarkable, especially given the recent collapse of Germany's coalition government and the impending return of US President-elect Donald Trump.

Winkler suggests that German companies are either not overly concerned about US trade policy or that these concerns are being offset by the prospect of new elections in Germany. As Winkler puts it, “Either German companies are not yet overly concerned about US trade policy or these concerns are being offset by the prospect of new elections in Germany.”

Germany's economic decline has been widespread, affecting all sectors except trade, which remains an intriguing exception. According to the Ifo Institute, a more accurate assessment of the current situation may lead retailers and wholesalers to be less pessimistic.

However, experts warn that the impact of Donald Trump's return to the White House on Germany's economy is likely to be negative. Carsten Brzeski, global head of macro at ING, notes that Trump's tax cuts, deregulation, and potential trade war with the European Union will have “a negative one” impact on Germany.

Philipp Scheuermeyer, economist at public lender KfW, agrees, saying it's “no wonder” that the Ifo index has fallen. He believes that “Donald Trump's election victory is likely to create new headwinds for the already hard-hit German Export industry.”

Franziska Palmas, senior Europe economist at Capital Economics, noted that the Ifo readings “confirm that the German economy is stuck in a rut.”