German Business Sentiment Declines for the Sixth Consecutive Month — Update

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By Maria Martinez
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German business sentiment has worsened by Christmas, with supply constraints and deteriorating health conditions weighing down the short-term outlook.

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The IFO business-climate index declined from 96.6 points in November to 94.7 points in December, data from the IFO Institute showed on Friday. This is the sixth consecutive decrease for the indicator after hitting 101.8 in June.

The reading is below consensus forecasts from economists polled by The Wall Street Journal, who expected the index to drop to 95.4.

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“The German economy is not getting any gifts this year,” said Ifo president Clemens Feuest.

Ifo said in December companies were less satisfied with their current business situation and more skeptical about the months ahead.

The trade-expectations component fell from 94.2 in November to 92.6 in December. The measure, which measures the current business position of companies, also declined to 96.9 from 99.0 in the previous month.

The Ifo index is based on a poll of nearly 9,000 companies across manufacturing, services, trade and construction.

The index for German manufacturing rose from 16.7 in November to 17.3 in December after falling five times in a row. This is due to more optimistic expectations on the part of the companies, as the order book has grown significantly.

However, companies’ assessment of the current situation was somewhat poor, as supply constraints for intermediate products and raw materials intensified once again.

“The worsening pandemic situation is hitting consumer-related service providers and retailers hard,” said Mr. Fuest.

In the services sector, the business environment declined to 4.5 from 11.6 in the previous month. Service providers were far less satisfied with their current business situation and expectations, turning pessimistic from a bit optimistic recently. Ifo said there has been a decline in survey responses, especially in tourism and hospitality.

In trading too, the index fell sharply to minus 4.1 in December, from 2.7 in December. Businesses’ assessment of their current situation was markedly less positive and the expectation indicator fell to its lowest level since January.

In construction, the business environment deteriorated from 11.7 last month to 7.4 in December.

Write to Maria Martinez at [email protected]

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