German business confidence unexpectedly dropped in January, cooling hopes that the downturn in the export-led manufacturing sector was on track to stabilise.
The Ifo Institute, a Munich-based think-tank, said its measure showing sentiment among the 9,000 German companies it surveys every month had declined to 95.9 in January, from 96.3 in December. That contrasts to economists’ expectations in a Reuters poll of a rise to 97.
“This sounds a warning note for those expecting an impressive rebound in the German growth rate,” said Andrew Kenningham, chief Europe economist at Capital Economics. “We think the economy will continue to grow at only a very anaemic pace in the first half of this year.”
The drop marks the first fall since sentiment began to creep up in September, after an almost uninterrupted decline over the previous two years.
The forward-looking indicator for business expectations slipped to 92.9 in January, from 93.8 a month earlier. Economists polled by Reuters expected an increase to 95.
The unexpected slide in the business climate of the eurozone’s largest economy cools hopes of a stabilisation in German economic activity after sentiment indicators released last week showed improvement.
The headline business climate index dropped despite improved sentiments in the manufacturing sector as both the services and the construction sector reported a deterioration compared with the previous month.
The net balance between manufacturers reporting good or poor business climate increased to minus 1.6, from minus 5 in December. However, for businesses in the services sector the net balance dropped to 18.7 from 21.3.
“This is a big disappointment in light of the otherwise solid PMI data,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. “We take comfort in the fact that manufacturing sentiment jumped at the start of the year. This is, after all, the most cyclically sensitive sector.”
The Zew economic sentiment for Germany jumped to the highest level in four years and the IHS Markit purchasing managers’ indices showed German services activity expanding solidly in January, while the deterioration in the manufacturing sector has eased the most since February last year.
Source: Economy - ft.com
