T he German economy is showing few signs of recovery after a crucial indicator showed business bosses’ gloom deepened in the opening weeks of 2020.
Hopes of a rebound in the eurozone’s largest economy were dashed by the influential IFO Institute’s monthly survey, which slipped in January to record its first fall since August.
It indicated that the manufacturing industry,
the center of the country recent slowdown , may be stabilizing, with the biggest improvement in its index score in almost two years.
But it also showed the weakness in the industry may have spread to services and construction, with businesses in those two sectors becoming meaning cautious.
The IFO business climate index fell from . 3 in December to .9 in January, leaving it in ‘downturn’ territory.
“Today’s reading is certainly a disappointment. Although we continue to think that a bottoming out in German business sentiment over the next few months is still likely, the January reading casts doubt on a gradually brightening outlook, ”said economist Thomas Strobel at UniCredit. W orries over the US-China trade war and the risk of this extending into a US-EU trade war add to the uncertainty and could undermine growth and investment in manufacturing, he said, while other sectors are also struggling.
“Confidence in sectors driven by internal demand, such as in services and retail, has waned, and the same can also be seen in the construction sector. Hence, risks have increased that there could be further weakening in the broader economy, ”said Mr Strobel.
I t Comes after weak surveys across the eurozone last week suggested the currency area’s manufacturing woes are not over, while the services sector labels with minimal growth.
The purchasing managers’ survey from IHS Markit indicated a “stable” but underwhelming outlook for growth, with German and French businesses performing better than those in the smaller economies.
E conomists Hope that overall the German outlook should stabilize eventually, even if the survey indicates any improvement will arrive only gradually.
Katharina Koenz at Oxford Economics said: “The main disappointment was in services, which are prone to be volatile, so we maintain our view that recession risks are fast abating for Europe’s largest economy and expect Germany’s growth will pick up a little, to 0.2pc in 2020 ‘s first quarter. Downside risks from industry, global trade and the threat of US car tariffs remain, however. ”