German Ifo Business Confidence Weakest Since 2020

(RTTNews) - Business morale in Germany weakened unexpectedly to the lowest since the summer 2020 as the train strike and supply chain issues caused by the Red Sea re-routing added to the current sombre outlook.

The business confidence index fell to 85.2 in January from a revised reading of 86.3 in December, survey results from the Munich-based ifo Institute showed on Thursday. The score was forecast to climb to 86.7. The reading hit the lowest since May 2020.

Companies assessed their current situation as worse. Moreover, their expectations for the months ahead were more pessimistic.

The current situation index posted 87.0, down from 88.5 a month ago and the expected reading of 88.6.

Likewise, the expectations indicator dropped to 83.5 in January from 84.2 in the previous month. The score was seen at 84.8.

"The German economy is stuck in recession," Ifo Institute President Clemens Fuest said.

The largest euro area economy is likely to contract again in the first quarter and post zero growth for the whole year, Capital Economics' economist Andrew Kenningham said.

Looking beyond the near term, the current state of stagnation as well as shallow recession is likely to continue, ING economist Carsten Brzeski said. The risk that 2024 will be another year of recession is high.

The ifo Institute had downgraded Germany's growth projection for 2024 to 0.7 percent from 0.9 percent. The economy had contracted 0.3 percent last year.

Last November, the Federal Constitutional Court declared that the government's allocation to its Climate and Transformation Fund of untapped credit earmarked for the coronavirus pandemic was unconstitutional. At the time of the ifo preparing the current economic forecast in December, it was unclear to what extent expenditure would be cut or taxes increased, the think tank said. The baseline forecast assumed that all fiscal policy measures planned up to that point would be implemented regardless of the budget gap.