Germany business mood sours as 2023 ends

FRANKFURT: German business morale worsened in December, a key survey showed Monday, as a year-end budget crisis deepened concerns about Europe’s biggest economy after a difficult 2023.

The Ifo institute’s closely-watched confidence barometer, based on a survey of around 9,000 companies, fell to 86.4 points in the final month of the year, after climbing to 87.2 points in November.

The reading disappointed analysts, who had been expecting another increase.

“Sentiment in German business has clouded over,” said Ifo president Clemens Fuest, adding that the German economy “remains weak”.

The dip comes as the German government was forced to hastily rethink its 2024 budget after a recent court ruling upended its spending plans.

The budget crisis wrapped up a difficult year for Germany’s export-driven economy, already buffeted by high inflation, rising interest rates, a manufacturing slowdown and global economic weakness.

The latest Ifo reading “suggests that recent fiscal woes are weighing on German business sentiment,” said ING economist Carsten Brzeski.

“It also shows that the recession risk remains high, not only for 2023 but for 2024, too.”

Leading economic institutes expect the German economy to shrink slightly this year before staging a modest recovery.

Last week, however, Germany’s central bank sharply cut its forecast for next year, saying it would take time for the economy to pull itself out of the doldrums.

The Bundesbank now expects output to be 0.4 percent in 2024, down from its last forecast of 1.2 percent in June.