IFO index falls unexpectedly further

"Economy remains weak"

2023 December 18 . 6:48 PM

2 min read

In industry, the business climate index fell noticeably..aussiedlerbote.de

IFO index falls unexpectedly further

After two increases, the IFO Institute's business climate index is falling again, although experts had expected otherwise. Industry and construction in particular are pessimistic about the future. "The gift is more modest", they say.

The mood in the boardrooms of the German economy took a surprising turn for the worse at the end of the year. The IFO business climate fell by 0.8 points to 86.4 points in December compared to the previous month, according to the Munich-based IFO Institute's survey of around 9,000 managers. Previously, there had been two increases in a row.

Experts surveyed by Reuters, however, had expected an increase to 87.8 points. Companies were again more pessimistic about their current business situation and their prospects for the coming months. "The economy remains weak even in the Christmas period," said IFO President Clemens Fuest.

Construction falls to 2005 level

In industry, the business climate index fell noticeably. "Energy-intensive sectors in particular are struggling," explained Fuest. The mood in the service sector improved slightly. Companies reported less skepticism about the outlook for the coming six months. The business situation in the hospitality industry did improve. "However, expectations have plummeted," explained the IFO. This is likely to be due to the expiry of tax breaks at the start of 2024. In retail, the mood of managers deteriorated and in the construction industry, the index even fell to its lowest level since September 2005.

"The Christmas presents for the German economy will be more modest this year," IFO economic expert Klaus Wohlrabe told the Reuters news agency. The budget crisis following the ruling of the Federal Constitutional Court reflects the increased uncertainty among companies.

Institutes lower forecasts

Jens-Oliver Niklasch from LBBW spoke of a dampener at the end of the year. "In recent weeks, there was actually a lot to suggest that the economic downturn was coming to an end, especially as the prospect of falling key interest rates for 2024 was shining brightly on the horizon." However, with the latest data from industry, the downside risks have once again come to the fore. "The budget ruling by the judges in Karlsruhe was probably the straw that broke the camel's back." Some companies are now likely to have taken another look at their investment plans.

The German economy contracted slightly in the summer. A further decline in gross domestic product in the current quarter threatens a relapse into a temporary - so-called technical - recession. Many leading economic research institutes such as the IFO, the DIW in Berlin and the IWH in Halle have lowered their forecasts for 2024 and expect growth of just 0.5 to 0.9 percent. The trade union-affiliated IMK even assumes that the economy will shrink by 0.3% in 2024 - just like this year. This is because the German government's budget compromise is likely to slow down the economy.