German business sentiment weakest since May 2020

LONDON (ICIS)–German business sentiment dropped to its lowest point since May 2020 in December, according to the latest data from the Ifo Institute on Tuesday.

The Ifo Business Climate Index fell to 84.7 points, down from  85.6 points in November, with the decline driven by pessimistic expectations.

Although companies viewed the current situation as better, the Ifo stated that ‘the weakness of the German economy has become chronic.’

The manufacturing sector bucked the trend of improved current business conditions. Poor sentiment was compounded by deteriorating orders and the announcement of production cutbacks.

Meanwhile, the index for the construction sector rose, driven by an improved assessment of current business conditions, mitigating the impact of deteriorating expectations.

The outlook for wholesalers weighed down sentiment for the trade sector, compounded by dissatisfaction from retailers.

Weaker expectations weighed on sentiment in the services sector despite an uptick in the current situation.

Seasonal strength from the catering sector was not enough to offset concerns the transport and logistics sector have about business in the coming months.

This supports the outlook that conditions will remain challenging in 2025 for German businesses.

According to an Ifo Institute survey, only 12.6% of German companies surveyed expect an improvement in the coming year. In contrast 31.3% anticipate further deterioration and 56.1% predict no change to their economic situation in 2025.

“Companies are currently seeing no signs of an economic upturn. In view of the fact that the economy has already performed poorly in 2024, these figures are worrying,” said Ifo head of surveys Klaus Wohlrabe.

Thumbnail photo: Berlin (Source: Shutterstock)