German Ifo Business Climate Worsens as Manufacturing Expectations Weaken

25 January 2021

By David Barwick – FRANKFURT (Econostream) – The first decline in German manufacturing sector sentiment since last April drove a fall in the country’s business climate for the month of January, according to the Ifo Institute on Monday.

The headline business climate index fell from a seasonally adjusted 92.2 in December to 90.1 in January as companies more negatively assessed both the current situation (down from 91.3 to 89.2) and their expectations (down from 93.0 to 91.1), the research institute said.

The 90.1 reading of the main index represents the lowest level since June.

Although the services sector was particularly hard-hit (down from -0.4 to -4.4) as lockdown measures took a clear toll, the renewed downturn of the manufacturing sector (down from 9.1 to 8.8) indicated broad-based weakness as the new year got underway.

The overall gloomier mood among manufacturers reflected a worsening of expectations that outweighed a more positive view of the current situation.

The generally weak tone for the Eurozone’s largest economy was reinforced by a dramatic deterioration of the sub-index for the trade sector (down from 0.3 to -17.2) and a less severe but still pronounced weakening of the construction sector (down from -0.8 to -5.1).

Ifo’s business climate index is Germany’s principal leading business cycle indicator and is closely watched by the European Central Bank.