Photographer: Krisztian Bocsi

German Business Optimism Slips From High on Economic Nerves

Updated on
  • Ifo confidence index unexpectedly falls to 117.2 vs est. 117.5
  • Gauge for current conditions increases, expectations worsen

German business confidence unexpectedly weakened in December, while remaining close to its record, in a sign of nerves over the outlook for Europe’s largest economy.

The Ifo Institute’s gauge of business sentiment declined to 117.2 from a revised 117.6 the previous month. Economists surveyed by Bloomberg predicted a reading of 117.5, matching November’s original number.

Ifo’s gauge remains near the all-time high set last month, reflecting the fact that Germany’s economy has excelled this year amid robust domestic spending and a recovery in global trade. The Bundesbank lifted its growth projections last week.

Still, the slight setback signals that businesses may be starting to register concern over production constraints such as finding skilled workers. Another risk is Chancellor Angela Merkel’s continued struggle to form a new government months after September’s general election, though Ifo President Clemens Fuest played down that issue.

“The index has taken a breather but I don’t think it’s related to coalition talks,” he said in a Bloomberg Radio interview with Matt Miller and Guy Johnson. “The companies are telling us the situation is very good, but because it’s so good they don’t expect it to improve further. So what’s caused the dip is the expectations, that were slightly less euphoric.”

The assessment of current conditions rose to 125.4 in December from a revised 124.5, Ifo said. The gauge of expectations slid to 109.5 from 111.0.

Read more: Germany to Raise Federal Debt Sales to EU183 Billion in 2018

Solid growth in Germany has also helped propel the euro-area economy, which is heading for its best year in a decade on the back of European Central Bank stimulus. ECB President Mario Draghi said last week that strong cyclical momentum and a reduction of economic slack has increased policy makers’ confidence that inflation in the region will finally pick up.

— With assistance by Andre Tartar, and Kristian Siedenburg

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