German business confidence weakens

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 last month’s all-time high, 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 struggle to form a new government months after September’s election, though Ifo President Clemens Fuest played that down. “The index has taken a breather but I don’t think it’s related to coalition talks,” he said. “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.

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 stimulus. ECB President Mario Draghi said last week that strong cyclical momentum and a reduction of economic slack has increased policymakers’ confidence that inflation in the region will finally pick up. (Bloomberg)