GERMANY: Ifo business climate index drops markedly

Sentiment among German businesses weakened at the beginning of the year, with the Ifo Business Climate Index for industry and trade falling to just 107.3 points in January from 108.6 points in December.

 
Assessments of the current business situation were scaled back slightly, but remained very good, the Ifo report said, adding that “business expectations, by contrast, clouded over significantly as the year started with an unpleasant surprise for the German economy,” according to Dr Hans-Werner Sinn, President of the Ifo Institute.
In manufacturing, the business climate index fell to a 12-month low, the Munich-based research institute said. Favourable assessments of the current business situation were only scaled back a little, but business expectations were substantially revised downwards. Although the chemicals sector benefited from low oil prices, sentiment weakened in several other branches, including mechanical engineering and the automotive sector, mainly due to the poorer export outlook. Capacity utilisation rates in manufacturing on the whole rose by 0.6 percentage points to 85.1%.
In wholesaling, the business climate index rose, mainly due to far better assessments of the current situation. Wholesalers’ business expectations, by contrast, deteriorated slightly. In retailing, the index remained almost unchanged. While retailers were slightly less satisfied with their current situation, their business expectations turned positive.
In construction, the business climate index continued to fall markedly, but still remains clearly above its long-term average. The decline was due to more pessimistic expectations on the part of contractors. Assessments of the current business situation, by contrast, reached their highest level in over two years.