German business confidence dips slightly

Mood dented by some concern about domestic economy

FRANKFURT, Dec 17, (AFP): German business confidence dipped slightly in December, but still remains at high levels, reflecting the ongoing resilience of Europe’s biggest economy in the face of numerous challenges, analysts said Thursday.

The Ifo institute’s closely-watched business climate index slipped to 108.7 points in December from 109.0 points in November, the economic institute Ifo said in a statement, a fractionally steeper drop than analysts had been expecting.

Ifo calculates its headline index on the basis of companies’ assessments of the current business environment and the outlook for the next six months.

The sub-index measuring current business fell by 0.6 points to 112.8 points, while the outlook sub-index was unchanged at 104.7 points, the institute said.

“Sentiment in the German economy weakened slightly this month. Assessments of the current business situation declined, but optimism about future business developments remained unchanged,” said Ifo president Hans-Werner Sinn.

Nevertheless, all three readings — the headline index and the two sub-indices — “are around three points above the respective levels seen in December 2014. The economic situation could hardly be better in the run-up to Christmas,” Sinn said.

“The slight decline in the index is no warning signal for the German economy,” said Postbank economist Heinrich Bayer.

But Commerzbank economist Joerg Kraemer was more sceptical.

“The underlying trend has for months pointed sideways at high levels. But at present, we would place more trust in order intake, which has been declining since summer, mainly due to slowing demand from emerging markets. German economic growth looks set to decelerate to 1.3 percent in 2016,” he said.

Capital Economics’ McKeown agreed.

“The small fall in the headline index in December left it still at a high level. But the sharper decline in the current conditions component supported evidence from recent hard data that growth may have reached a peak,” she said.

“On balance, the Ifo paints a positive picture of the German economy for now. But its fall offers some support to our forecast that growth is likely to slow before the economy has begun to generate any meaningful inflationary pressure,” she said.

Berenberg Bank economist Holger Schmieding was much more optimistic.

“Steady as she goes as external risks recede a little. This is the major message from German Ifo business climate,” he said.

“Business climate and its key components remain above their long-term averages. This fits our view that, after a modest dent in the second half of 2015, German GDP growth will reaccelerate to its trend rate of roughly 1.8 percent over the course of next year.”

Jennifer