German business morale falls as political impasse clouds outlook

BERLIN: German business morale deteriorated unexpectedly in December after hitting an all-time high in the previous month, a survey showed yesterday, suggesting that political deadlock in Europe’s economic powerhouse is clouding the outlook.

Chancellor Angela Merkel is struggling to form a stable government after her conservatives lost voters to the far right in September’s election and her attempt at a tricky three-way alliance with two smaller parties failed last month. The Munich-based Ifo economic institute said its business climate index, based on a monthly survey of some 7,000 firms, edged down to 117.2 from an upwardly revised reading of 117.6 in November which was the highest on record. The December reading came in lower than a Reuters consensus forecast for a value of 117.5. The slight drop in the headline figure was driven by managers’ less optimistic business expectations while their assessments of the current situation were more positive. Overall business morale remained on a relatively high level, Ifo chief Clemens Fuest said, adding: “German businesses are full of festive spirits.”

Ifo economist Klaus Wohlrabe warned against overinterpreting the drop. “If the situation is already very good it is even more difficult to expect better business,” he said. Wohlrabe said that uncertainty among German businesses over the shape of the new government, which is likely to include Merkel’s conservatives and the center-left Social Democrats (SPD), had risen slightly. Michael Holstein from DZ Bank pointed out that the December figure was still the second-highest Ifo reading on record, adding: “The German upswing will continue, 2018 is likely to be another year with a growth rate of more than 2 percent.”—Reuters